- PayPal Holdings, Inc. (PYPL) shares closed down again on Wednesday, nearing $75.
- This is the latest in a series of new low closes in 2022 for PYPL stock and it is now trading at levels not seen since 2018.
- PayPal stock is cheap and that may tempt investors, but they should pass because things are likely to get worse before they better for Paypal.
On May 11, PayPal Holdings, Inc. (NASDAQ:PYPL) stock closed down 1.3%, slipping below $75. That may not sound like a big deal in 2022, especially for a tech stock. The sector has been hammered as investors move away from growth stocks for safe havens. However, in the case of PYPL stock, 2022 has turned into a “death by a thousand cuts” situation. Add that 1.3% drop to the tally and you’ll see that PayPal stock is down over 70% so far in 2022.
To find a time when PYPL stock was this cheap, you’d need to go back to 2018. Even in the aftermath of the stock market crash in March 2020, PayPal shares were worth more.
Investors may find this price tempting. After all, PayPal is an established tech company with a long history. For many people, it is synonymous with online payment. Its Venmo mobile payment and digital wallet is popular and the company was an early supporter of cryptocurrency. However, the current environment the company finds itself in is problematic. Add in worrisome signs like layoffs and a chief financial officer (CFO) resignation, and now is not the time to buy PYPL stock. No matter how cheap it is, it is likely to get cheaper.
|PYPL||Paypal Holdings, Inc.||$78.83|
PayPal Thrived During the Pandemic, Now It’s Struggling
PayPal couldn’t have asked for a scenario that was more conducive to its business than the Covid-19 pandemic. Especially in the early days when stores were temporarily shuttered, everyone shopped online and cash was avoided like the plague. The U.S. government even allowed stimulus payments to be deposited directly to PayPal’s Venmo digital wallet. PayPal added new users at a breakneck pace and transaction volume through its network accelerated.
This company was one of the pandemic winners and shareholders were very well rewarded. After dropping below $87 in March 2020 after the stock market crash, PYPL stock surged. Riding the wave of pandemic growth, PYPL ended 2020 with a return of around 114%, even with the market crash accounted for. At several points in 2021, PayPal stock crossed the $300 threshold.
However, since last July, PYPL stock has been in an extended slump. In February, after the company lowered its 2022 revenue and earnings guidance, shares dropped 25% in the stock’s worst ever single-day performance.
While the pandemic was a huge boost to PayPal, the recovery from the pandemic has been less kind.
The Near Future Doesn’t Look Great for Paypal Recovery
PayPal is experiencing a significant slowdown in user growth. In 2020, the company added 73 million new users accounts. For 2021, it added nearly 50 million new accounts. In February, the company issued guidance for adding just 15 to 20 million new user accounts for 2022. At that time, PayPal said it was pivoting its focus from adding new users to generating more revenue per user. Analysts weren’t impressed — getting users to spend more is tough at any time and the current economic conditions are hardly conducive to such efforts. Many began downgrading PYPL stock.
Since then, there has been more bad news for PayPal. This includes layoffs and the resignation of the company’s CFO, a seven-year PayPal veteran. When the company reported first quarter earnings on Apr. 27, it had added only 2.4 million new users for the quarter. That makes even February’s lowball estimate of 15 to 20 million new users for 2022 seem like a stretch. We’re not supposed to look at that number any more, but it’s hardly a positive sign. In addition, the company further lowered its guidance for 2022 earnings per share and revenue growth.
Bottom Line: Don’t Buy PYPL Stock
I’m not saying PayPal is sunk, just that it is going to need time to find a new footing. That’s unlikely to happen any time soon and economic storm clouds are not going to help. After all, this is a company that relies on consumer spending.
At this point, PYPL stock earns an “F” in Portfolio Grader. It may look like a bargain considering shares were trading above $300 less than a year ago. However, signs point toward this downward trajectory continuing. Slowing growth never impresses the market, especially the degree of slowdown PayPal is experiencing. Keep an eye on the company for signs of recovery through the year, but don’t take on the risk of buying PYPL stock now.
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