PayPal continues to feel pressure as competition is growing and financials have yet to improve

Overview

PayPal is a very popular American financial technology company. They operate payment systems in most countries which allow users to send money, receive money and have lines of credit. Year to date the stock is down 64% and over 77% from its July 2021 highs - that's a rough drop. In fact, that's wiped out 5 years of gains. However, when analysing the financials in depth, the drop can be justified in some circumstances.

Financials

PayPal's Market cap currently sits at $83Bn or so, at its peak, it was valued at $362bn. Based on the financials produced this year, 2022 revenue is looking to be around $26.9bn. With a profit after tax estimation of around $2.2bn. This means PayPal would operate on an 8% profit margin. In 2021 that figure was 16.4%, and in 2017 that same figure was 13.7%. This can help justify the drop throughout 2022, profit margins are simply being eroded. Looking at the balance sheet, Cash on hand looks strong at $10.85bn, with total assets at $76.4bn and liabilities at $56.1bn. This leaves PayPal with net positive assets of $20.2bn (73.4% A/L Ratio). In 2017 these figures were significantly better, Total assets were $40.7bn with liabilities at 24.7Bn, this is a 60% A/L ratio. This means liabilities (or debt) have increased by around 21% relative to assets, which is never good when profit margins are also shrinking as well.

Technicals

Looking at the chart, it reads a similar situation to the financials. The stock continues to get hammered with 2017 levels now acting as possible support.  First Major support sits at $67.15 which is the 2022 low and the Autumn 2017 high. A break below here could see PayPal drop further towards $60 which is where the Summer 2017 consolidation area sits. Towards the upside, tough resistance sits at $90 with further resistance at $100. Looking at the technical indicators MACD on the weekly is rolling over and going negative, RSI is trending down reading 36.7 and the candlesticks sit comfortably in the lower Bollinger Bands – thus no sign of consolidation or recovery yet.

Summary

Overall PayPal is struggling. 2023 is unlikely to be a ‘tech’ year and PayPal shares could very well stay at these levels for some years because the finances point to eroding profit margins and higher levels of debt, of which will need to be serviced in the coming years. Competition is also fierce, with Visa, Mastercard, AMEX, Bloc, Stripe and recently Apple Pay as strong contenders in the market. Payment services is an overcrowded market and unless PayPal can come up with some payment innovation it's likely they’ll continue to struggle for market share and profits.