PayPal stock (NASDAQ:PYPL) is going through a rough patch. The stock (NASDAQ:PYPL) will be down 55% in 2022, compared to a 24% drop in the S&P 500. Is now a good time to buy this fintech pioneer, taking advantage of the market’s pessimism?
A significant slowing
PayPal generated $6.8 billion in revenue in the most recent quarter (ended June 30), a 9.1% increase over the prior-year period. This compares to an increase of 18.6% in the second quarter of 2021. Furthermore, the total payment volume, a key performance indicator for PayPal stock (NASDAQ:PYPL) investors, increased 9% year on year to $340 billion. To be sure, that’s still a large sum, but the growth rate has slowed dramatically in recent quarters. To make matters worse, the company reported a $341 million net loss in the second quarter, its first quarterly loss since the first quarter of 2014.
The Federal Reserve’s ongoing plan to aggressively raise interest rates to tame soaring inflation is harming PayPal’s business. The purchases that dominate its platform are primarily discretionary, meaning they will be the first to be reduced if the economy deteriorates.
As a result of the softening environment, management has been forced to lower 2022 revenue guidance twice and now expects sales to rise 10% year over year. However, it raised its full-year 2022 projection for adjusted profits per share to $3.92 at the midpoint. Cost cuts of $900 million this year will undoubtedly aid in meeting the profit target.
PayPal Stock: Prospects for Growth
As a company, PayPal is still rapidly expanding. As of June 30, the firm has 429 million active accounts, increasing 6% from the previous year and 50% from the second quarter of 2019. Annual sales and profit growth have averaged 18% and 23% over the last three years (2019, 2020, 2021).
The leadership team abandoned its previous goal of reaching 750 million active accounts by 2025 and is now solely focused on gaining higher-value consumers who often use PayPal’s services. Over time, this should result in increased income per client. And, with less than 50% consumer penetration in key economies like the United States, Canada, and Germany, there is much room for growth.
Despite this, PayPal (PYPL) works in a very competitive business. Payments are a profitable business model; therefore, it’s not unexpected that the firm has some competitors, most notably Block (formerly Square).
However, PayPal is a money-making machine. Despite closing in the red in the most recent quarter, management expects the corporation to generate $5 billion in free cash flow for 2022. Combine this with a $5 billion net cash position, and you have a strong balance sheet that can withstand any storm.
PayPal Stock: Its current market value
PayPal’s stock (NASDAQ:PYPL) is presently selling at a future price-to-earnings ratio of less than 22 after falling 72% from its all-time high in July 2021. According to this valuation criterion, shares are approximately half as costly today as they have been during the previous five years. And this might indicate that now is a good time to buy the stock(NASDAQ:PYPL).
Featured Image – Megapixl © Prykhodov
Author Okoro Chinedu 
