Why PayPal stock has outperformed today’s market

Why PayPal stock has outperformed today’s market

What happened

Shares of PayPal Holdings (PYPL 5.21%) they were up 4% at 10:41 a.m. ET Monday, outperforming the S&P 500 index. Stocks got a boost as investors tasted a strong earnings report Bank of America. PayPal also announced PayPal Rewards, a new app feature that combines cashback rewards and merchant offers into one shopping experience.

Slowing growth and increasing competition from Apple have contributed to PayPal’s 73% decline since hitting an all-time high in 2021. Can it come back?

PYPL chart

PYPL data by YCharts

So what

PayPal says the rewards feature is designed to help consumers save money this holiday season, which could benefit its 429 million active accounts at a time of high inflation. But the announcement is also a response to Apple Paywhich continues to take market share in transaction value from Mastercard and Visa.

Apple has a huge built-in user base and is putting more pressure on PayPal with new features this year. Last week, Apple unveiled a new high-yield savings account that will be coming to Apple Card users over the next few months. Earlier this year, Apple also launched Pay Later.

Meanwhile, PayPal saw active account growth slow to 6% in the second quarter, down from 16% in the same quarter of 2021.

What now

The market remains bullish on PayPal, despite its share price decline this year. Analysts expect the payments provider to post 10% revenue growth for the full year before accelerating to 14% next year. Shares are traded on a forward price-to-earnings ratio of 21.2 with an estimated five-year earnings growth of around 13% on an annual basis.

Competition may have contributed to PayPal’s lower growth, but it still has a large active user base. This is reflected in the 12% increase in transactions per account last quarter.

There are still healthy indicators that PayPal is still a force to be reckoned with, which explains why the stock is rising today as part of a broader market rally.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has no position in any of the listed stocks. The Motley Fool has positions in and recommends Apple, Mastercard, PayPal Holdings and Visa. The Motley Fool recommends the following options: long March $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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