PayPal Holdings Inc HQ photo-by bennymarty via iStock
Earlier this month, shares of fintech firm PayPal Holdings (PYPL) jumped after reports emerged that rival payments firm Stripe and private equity company Advent International had made a $53 billion takeover bid. The reported takeover bid values PayPal at $60.50 per share, a 28% premium to its July 14 closing price.
However, according to a new report, PayPal’s board considers the bid to be undervalued and potentially setting the stage for negotiations over the future. PayPal has not formally replied to the proposal. The potential acquisition is being questioned as the payments giant loses ground to competitors, particularly Apple (AAPL), Shopify (SHOP), buy-now/pay-later companies like Affirm (AFRM), and Klarna (KLAR), and peer-to-peer money transfer services like Cash App and Zelle.
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This year, PayPal appointed Enrique Lores as CEO to rejuvenate the company’s fundamentals. Lores has sought an AI approach to reinvent the digital payments stalwart, expecting it to result in cost savings that can be reinvested.
How should you play the stock here?
About PayPal Stock
PayPal is a global financial technology company that operates a digital payments platform. Its services support checkout, peer-to-peer transfers, merchant payment processing, and other commerce-related tools across many markets. The company is headquartered in San Jose, California and has a market capitalization of $50.12 billion.
PayPal’s stock is down because growth has slowed, guidance has been cautious, and investors want clearer proof that the core payments business can reaccelerate. Additionally, recent results raised concerns about margins and near-term execution.
Over the past 52 weeks, the stock has dropped 25.6%, while it is down 4.6% year-to-date (YTD). PayPal’s shares reached a 52-week low of $38.46 on Feb. 12, but are up 45% from that level. Amid potential acquisition interest, the stock has climbed 31% over the past month.
On a forward-adjusted basis, PayPal’s price-to-earnings (non-GAAP) ratio of 10.70 times is lower than the industry average of 11.37 times.
PayPal Reported Q1 Results, with Focus on Strategic Priorities
For the first quarter, PayPal made it clear that it is taking deliberate steps to sharpen its strategy and simplify its organization. The company is trying to reinject growth into its system and improve its cost structure, so that margins expand. PayPal’s total payment volume (TPV) increased 11% year-over-year (YOY) to $463.96 billion, while its active accounts increased 1% to 439 million.
Turning to the financials, the company’s net revenues increased 7% from the prior-year period to $8.35 billion, exceeding the $8.05 billion expected by Wall Street analysts. Its transaction margin dollars grew 3% YOY to $3.81 billion.
The modest growth in the top line has affected PayPal’s bottom line. Its non-GAAP operating income dropped 5% YOY to $1.54 billion. However, its non-GAAP EPS was $1.34 for the quarter, up 1% YOY, surpassing the Street’s expected $1.27. For the current year, PayPal expects its non-GAAP EPS to decline in the low single digits or be slightly positive.
Wall Street analysts are tepid about PayPal’s future earnings. They expect the company’s EPS to decline by 8.6% YOY to $1.28 for the fiscal second quarter (to be reported on July 28, before the market opens). For fiscal 2026, EPS is projected to grow marginally to $5.32, followed by an 8.3% increase to $5.76 in fiscal 2027.
What Do Analysts Think About PayPal’s Stock?
This month, analysts at Barclays upgraded PayPal from “Underweight” to “Equal Weight” and gave a $55 price target. The ratings upgrade came after media reports of a potential takeover of PayPal. While fundamentals were unchanged, analysts did not see the acquisition creating material downside for now, given speculation.
Canaccord Genuity analysts raised PayPal’s price target from $42 to $55, while maintaining a “Hold” rating on the stock. Canaccord said PayPal’s board now seems more focused on improving operations under the new CEO than on strategic deals. It added that the core eCommerce payments business is mature, while PayPal has struggled to move into faster-growing consumer finance areas.
Wall Street analysts are taking a cautious stance on PayPal’s stock now, with a consensus “Hold” rating overall. Of the 45 analysts rating the stock, five analysts gave a “Strong Buy” rating, two analysts suggested “Moderate Buy,” while a majority of 33 analysts are playing it safe with a “Hold” rating, one analyst suggested “Moderate Sell,” and four analysts gave a “Strong Sell” rating. The consensus price target of $50.07 represents a 10.1% downside from current levels. However, the Street-high price target of $66 implies an 18.5% upside.
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Key Takeaways
With slowing growth, a transition phase with a new CEO, and the takeover bid not yet certain, it might be wise to simply observe PayPal for now.
On the date of publication, Anushka Dutta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
