PayPal has been under immense pressure in 2022 falling over 75% from its highs. The lows could be near, but risks do remain.
Overview
PayPal Inc is a US-based online payment system listed on NASDAQ. PayPal shares are currently priced at $77.68, down 75% from its all-time high of $308.53. The broader macro climate has contributed to the decline however this may have merely exacerbated the decline in the stock. Investor confidence in PayPal is very low due to PayPal repeatedly over-promising and under-delivering. They set ambitious targets at the beginning of 2021, an aim to reach 750 million active users and total revenue of $50bn by 2025. The former being abandoned by the end of 2021; While the latter, if abandoned, could send the stock tumbling down further.
Financials
The total market cap for PayPal is $86.3bn. Total 2021 Revenue was $25.4bn, which indicates strong growth from 2020 revenue of $21.5bn. However, the increase in PayPal’s operating expenses in 2021 has resulted in their net income remaining almost unchanged from 2020. Also, their balance sheet for the year ending 2021 is conflicting. Total cash on hand was $9.5bn, down 27% YoY, with it down to $8bn in Q1 2022. Total assets sit at $75bn and total liabilities are $55bn, representing a net positive of $20bn, giving the company a L/A ratio of 73%, which is acceptable. Overall, the financials are bearish for PayPal, the rate at which their cash-on-hand is decreasing, and their operating expenses are increasing could pose a significant issue in the short to medium term.
Technicals
From a technical aspect, the stock has initial support at $68.60; Any movement below this support could see the stock tumble further, how low PayPal can go is difficult to pinpoint given the economic climate. RSI sits at 27 pm the weekly timeframe indicating that the stock is oversold while the MACD remains slightly positive, both of which are bullish for the stock. Towards the upside, the initial target sits at $89.35, followed by $118, $177, and then $194.
Summary
It is possible for PayPal to experience further declines given the economic outlook, unlike other payment providers or banks, PayPal isn't a key financial hub anywhere, so a loss if users isn't an issue for anyone but PayPal, unlike a bank for instance. The financials indicate the struggling nature of PayPal over the past year, which partnered with the recent resignation of the CFO, could suggest the downturn may be prolonged. Competition continues to also get stronger with BNPL companies becoming popular with the younger generation and alternative payment processing companies like Block giving PayPal a tough time. However, the technical analysis suggests that the stock has incorporated this news and it has bottomed out, and hence is ready for a bounce-back, this is important here as algorithms trade of technical outlooks on a daily basis, if PayPal can hold its current price, then a bounce towards the given levels seems justifiable for now. The Risk to reward also seems positive in the long term as a 76% drop in just under 1 year is provides some cheap buying opportunities.
