The Stock of Paypal Could Be Near Its Ultimate Bottom, According to Analysts

The shares of PayPal Holdings Inc. had already undergone a significant decline of approximately 80% from their peak closing high. This trend coincided with Dutch payment processor Adyen NV presenting a discouraging signal for the payments industry in its recent earnings report. Despite this, an analyst proposes an alternative perspective, suggesting that Adyen's insights into a more standardized payments landscape could potentially have positive implications for PayPal's stock.

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In the aftermath of Adyen's earnings report, Andrew Jeffrey, an analyst from Truist Securities, highlighted a "difficult truth" pertaining to the broader payments industry. This truth, he articulated, revolves around the diminishing technological differentiation among e-commerce providers, further exacerbated by intensifying competition that is posing challenges even for the most advanced digital tech solutions.

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Contrary to the initial negative interpretation, Jeffrey introduces the concept that this discussion might, with a certain twist of logic, hold a bullish connotation for PayPal's beleaguered shares. He proposes that PayPal might have recognized and addressed this reality ahead of its peers and has been actively investing to counteract these challenges. While Adyen focuses on extensive investment to establish organic omnicommerce market share, Jeffrey asserts that PayPal could pivot its focus towards enhancing e-commerce monetization. Furthermore, he suggests that PayPal could strategically expand its capabilities in omnichannel commerce through well-considered mergers and acquisitions.

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Jeffrey elaborates on the unexplored potential inherent within PayPal, driven by its substantial net cash reserves of approximately $6 billion and its ability to generate cumulative free cash flow nearing $20 billion by 2025. While his model initially factored in ongoing share buybacks, he speculates that the forthcoming CEO of PayPal might contemplate pursuing a more aggressive M&A strategy.

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He underscores the notion that an acquisition of a card-present processor could be pivotal for PayPal's ambitions, particularly to fortify its Venmo and in-store monetization initiatives. This strategy is seen as increasingly relevant in the current landscape as competitors like Adyen and Shift4 invest heavily to establish omnichannel dominance.

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Jeffrey presents the notion that judicious and deliberate M&A pursuits could potentially catalyze a substantial positive reassessment of PayPal shares. He emphasizes that in addition to this factor, other elements he highlighted could contribute to this anticipated shift.

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Drawing a parallel, Jeffrey also addresses Block Inc., the parent company of Square and the Cash App. He notes that its shares have also faced recent pressures and suggests that "patient investors" could reevaluate their stance on this stock as well. In his evaluation, Block's current focus on profitability might be hindering the investment necessary for the growth of its Square ecosystem. However, he believes that the business is not fundamentally losing its structural market share and anticipates a resurgence in growth within the Square segment in the first half of 2024.

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Jeffrey concludes by suggesting that both Block and PayPal shares, previously overlooked, merit a renewed examination. His assessment of these two stocks leads him to rate both Block and PayPal shares as "buy."

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