- PayPal’s price action has been muted due to a lack of growth catalysts and a decline in active customer accounts.
- Transaction revenue has shown some signs of a rebound, but net revenue growth remains in the single digits.
- Active customer accounts have declined for three consecutive quarters, highlighting the need for customer adoptions to sustainably boost volumes.
- Margin expansion on unbranded is the key, as overall margins have stabilized but remain flat over the past few quarters.
- The stock’s valuation multiples look very cheap but remains a value trap as the growth outlook keeps disappointing investors.
Investment Thesis
PayPal Holdings (NASDAQ:PYPL)’s price action has been muted for the past year due to a lack of growth catalysts and a deterioration in active customer accounts. In my previous Buy coverage from last November, I was optimistic about the new CEO’s priorities on growth and transaction margin improvement. Since then, the stock has rallied over 10% after my rating upgrade. Although the company has achieved better-than-expected results in both top and bottom lines in 1Q FY2024, the forward guidance is below expectations. I admit, PYPL has shown early signs of growth rebound in transaction revenue and stabilization in margins. However, the transaction margin continued deteriorated to 45% from 45.8% in 4Q FY2023.
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