PayPal Holdings Inc.’s stock has experienced a significant decline, dropping about 80% from its highest closing peak. However, an analysis of the recent earnings report from Dutch payment processor Adyen NV suggests that this could be good news for PayPal’s stock.
Adyen’s report revealed an unsettling reality for the payments landscape, highlighting the lack of technological differentiation among e-commerce providers. The intensifying competition in the industry is causing issues even for the most technologically advanced platforms.
Surprisingly, this discussion could provide relief for PayPal’s struggling shares. Truist Securities analyst Andrew Jeffrey believes that with some unconventional thinking, it could be seen as a bullish signal for the company.
Jeffrey explains that PayPal has already recognized and addressed these challenges ahead of other industry players. By focusing on improving e-commerce monetization and incorporating omnichannel commerce capabilities through strategic mergers and acquisitions, PayPal can take advantage of its current position.
Considering the compelling valuation of PayPal’s stock, the perceived disappointment in the market may actually lead to a potential bottom for PayPal shares.
This analysis raises the question: Could Adyen’s struggles be an opportunity for PayPal?
In a recent analysis, Jeffrey highlights the untapped potential at PayPal, emphasizing its substantial net cash of approximately $6 billion. He envisions that the company has the capability to generate almost $20 billion in cumulative free cash flow by 2025. Notably, his model assumes that PayPal will continue with its buyback strategy, but he also predicts that the incoming CEO may explore merger and acquisition opportunities.
According to Jeffrey, it is imperative for PayPal to acquire a card-present processor to enhance its Venmo and in-store monetization initiatives. This strategic move becomes even more pertinent in light of Adyen and other companies, such as Shift4, heavily investing in building omnichannel franchises.
Jeffrey advocates for “prudent and thoughtful M&A” as a catalyst for a significant positive re-evaluation of PayPal shares, among other factors he highlights. He also draws attention to the recent decline in shares of Block Inc., the parent company of Square and the Cash App. For patient investors, he suggests revisiting this investment option.
Jeffrey suggests that Block may be neglecting investment in its Square ecosystem to prioritize profitability — an approach he believes to be misguided. While Block’s stock may stagnate until the Square business experiences renewed growth in the first half of 2024, Jeffrey argues that it is not losing structural market share.
In conclusion, Jeffrey believes that both Block and PayPal shares deserve closer scrutiny and rates them as strong buys. Their potential, when properly unlocked and leveraged, could yield substantial benefits for investors.