It’s making real progress, and the market is noticing.
PayPal Holdings (PYPL -0.80%) stock shot up 10% in August according to data provided by S&P Global Market Intelligence. The market liked its second-quarter update and finally sees a path forward.
Down but not out
PayPal was one of the biggest success stories of the pandemic, but it wasn’t able to hold on to its lead coming out on the other side. That’s not an unusual tale, and many companies are still struggling with the fallout of uneven growth precipitated by a global pandemic.
What marks PayPal’s story is that it’s a global fintech leader, and many new upstarts sprouted to address the growing needs of digitally connected shoppers. It didn’t look like PayPal was keeping up, and it was in danger of losing ground to competitors.
PayPal’s story is far from over. It hasn’t lost its top spot in fintech, and it has more than 400 million active users. It processed $1.6 trillion in volume over the trailing 12 months. But as it teeters, management has recognized that something needs to change, and fast.
It got a new injection of life with a new CEO, Alex Chriss, last year, and it looks like he’s making progress. That showed up in important ways in the second quarter. Revenue continues to increase, up 8% year over year in the quarter to $7.9 billion. But it was the profitability improvements that stood out, because that’s where it’s experienced the bulk of its problems. Operating income increased 17% to $1.3 billion, and operating margin expanded by 1.3 percentage points to 16.8%. Earnings per share (EPS) rose 17% to $1.08.
The right way to move forward
Chriss is making the right moves. He’s leveraging the company’s vast assets, such as its unmatched fintech ecosystem and incredible brand power, while addressing consumer pain points with a clear strategy.
PayPal has introduced several important new features and updates over the past few months that demonstrate its understanding of how to fix its system and create value for users. It offers one-page checkout and Fastlane, an option for merchants to keep consumer payment data and autofill at checkout. These make it easier for shoppers to complete purchases and are resulting in better customer satisfaction as well as higher conversions for merchants.
Yesterday PayPal unveiled PayPal Everywhere, a reimagining of what was supposed to launch as the PayPal super-app a few years ago. It has a long list of features for users to manage their spending, rather than a full financial app. It includes money back on certain items, tap-to-pay, and many customized features.
These are differentiated solutions that unlock PayPal’s operating power in ways other companies can’t match. PayPal stock is still well below previous highs, and now looks like a good time to buy.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
