PayPal (NASDAQ: PYPL) stock price has remained under intense pressure in the past few weeks as concerns about competition continued. It has plummeted for six straight weeks as it moved to the lowest level since March 11th.
PayPal’s woes are rising
PayPal, a company that was once popular among investors, has become a fallen angel as its growth slows and competition mounts.
This view was confirmed in April when the company published relatively weaker financial results than expected.
Its revenue rose by 9% in the first quarter to $7.7 billion as the total payment volume increased by 14% to $403 billion. Payment transactions increased by 11% to $6.5 billion while its free cash flow was $1.8 billion.
Most importantly, the number of PayPal’s users has continued to plunge after peaking during the Covid-19 pandemic. It now has 427 million active accounts, down from almost 435 million a few years ago.
What is becoming clear is that PayPal is no longer the growth machine it used was and its valuation is reflecting this. For example, its TTM price-to-earnings (PE) ratio stands at 15.10, down from the five-year average of 48.
The forward P/E ratio of 16 is also lower than its five-year average of 48 while the forward EV to EBITDA metric of 11 is smaller than the average of 26. As such, PayPal is being valued as a value stock.
PayPal’s competition problem
PayPal faces numerous challenges. The biggest one is that its unbranded business is facing robust competition from the likes of Apple, Affirm, and Square. Apple Pay is expected to continue growing in the coming years, with US users moving from 51.5 million this year to 56.7 million by 2026.
At the same time, its payment solutions business is competing with the likes of Remitly and Wise. Many users prefer using these solutions because of their speed and lower costs, which makes PayPal unattractive. Recent data also show that most retail traders prefer Apple Pay vs PayPal.
Therefore, with PayPal, we have a popular company that is no longer growing as it used to and one whose margins are lower than where they were before. On the positive side, PayPal is still a well-known company that is significantly undervalued and one that generates robust cash flow.
PayPal also has a solid balance sheet with over $17.7 billion in cash and equivalents against $11 billion in debt. It is also returning substantial sums of money to investors. It has repurchased over 81 million shares in the past 12 months, which has helped push its EPS higher.
PayPal stock price forecast
In my last article on PYPL, I warned that the stock had formed a risky rising wedge pattern and predicted that it could pull back. This prediction was accurate as the stock has now crashed and moved to its lowest point in months.
PayPal shares have crossed the key support level at $60.9, their lowest level in May. It has also formed a small death cross pattern as the 200-day and 50-day moving averages crossed each other.
Therefore, the stock’s outlook is bearish, with the next point to watch being at $56, its lowest swing in February.
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