January 19, 2025
PayPal (NASDAQ: PYPL) was a big winner in 2024, with shares rising by 39% for the year. This handily outpaced the S&P 500 and even beat the high-flying Nasdaq Composite index by more than 10 percentage points.
However, PayPal's stock still looks rather cheap by most metrics, and that's especially true considering how much progress the new management team has already made. With the company expected to report its year-end 2024 results on Feb. 4, now could be a great time to take a closer look.
Before we dive into the catalysts for 2025 and beyond, it's important to take a step back and discuss the current state of PayPal's business and the progress already made in its turnaround efforts.
PayPal is still a massive payment processor, with 432 million active users between its PayPal and Venmo platforms. It processed about $1.7 trillion in annualized payment volume in the third quarter of 2024 (the latest to be reported) and is a highly profitable business. It generates about $6 billion in annualized free cash flow and has more than $16 billion in cash and short-term investments on the balance sheet.
If you aren't familiar with PayPal's recent history, it was one of the most impressive momentum stocks of the COVID-19 era, as many consumers were effectively forced to move their shopping online. However, growth fizzled out as the pandemic came to an end, and the company's leadership team didn't seem to have a clear growth strategy.
In late 2023, PayPal decided to completely overhaul its leadership team by bringing in former Intuit executive Alex Chriss as CEO and replacing the company's senior leadership. To name just a few, PayPal hired the former head of Walmart 's omnichannel platforms and tech as its chief technology officer, the former head of Fiserv 's global business solutions as president of Global Markets, and former SoFi CFO Michelle Gill to lead its Small Business and Financial Services Group. Put mildly, PayPal's new executive team is an all-star collection of talent.
Chriss and his team initially focused on efficiency and cost savings, and this is apparent in the recent results. In the most recent quarter, PayPal's revenue increased by just 6%, but its operating margin expanded by nearly two full percentage points, and adjusted EPS grew by 22% year over year.
In PayPal's year-end 2023 earnings report, Chriss referred to 2024 as a "year focused on execution." And the management team was certainly busy with innovation and new growth initiatives.
Just to name the most significant:
One key takeaway is that none of these are reflected in any numbers the company has reported yet. We could start to see how they're performing when we get fourth-quarter results in a few weeks, but 2025 should be the year when we finally see how these initiatives are playing out.
In addition to PayPal's Feb. 4 earnings release, management will hold its earnings call at 8 a.m. ET on the same date. We could also get some more color on how the recent initiatives are progressing, even beyond what is reflected in the numbers that will be released.
PayPal has fallen by about 11% over the past month as interest rate headwinds and economic uncertainty have weighed on the markets. It now trades at about 17.5 times forward earnings despite having an excellent combination of profitability and growth potential. As mentioned, most of management's efforts haven't shown up in the numbers just yet, but if they do when PayPal reports its fourth-quarter results in early February, the stock might not be as much of a long-term bargain as it is today.
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