Summary
- PayPal’s active accounts have decreased for the second quarter in a row, threatening its growth narrative and causing its stock to slump.
- The decrease in active accounts could have greater ramifications for PayPal’s financials and share price in the future.
- PayPal also faces challenges in acquiring new customers and differentiating itself in a saturated market, as new entrants join the payment processing industry.
- I am Bohdan Kucheriavyi, an analyst and experienced professional trader. I lead the investing group Blacksquare Capital where I share Event-driven portfolio strategies for the changing geopolitical landscape.
At first, PayPal Holdings (NASDAQ:PYPL) looks like a decent stock to own as the company has been improving its business in recent quarters and its stock appears to be greatly undervalued after the recent slump. However, thereâs one thing that makes PayPal a potential value trap and that is the decrease of its active accounts for the second quarter in a row. This is a big deal for PayPal since the shrinkage of the customer base destroys the companyâs growth narrative and makes growth investors flee the stock despite it being undervalued based solely on the fundamentals.
Even though this decrease hasnât greatly affected PayPalâs financials this year so far, a potential further reduction in active accounts could lead to greater ramifications and result in a further depreciation of the share price in the future. While the companyâs management tries to avoid such a scenario by expanding the number of products that it offers, PayPal is likely to face several challenges that could undermine such efforts and could make its stock continue to trade at distressed levels in the following months.
Are PayPalâs Golden Days Behind It?
Earlier this month, PayPal reported its Q2 earnings results which showed that the companyâs revenues increased by 7.4% Y/Y to $7.3 billion and were above the street estimates by $30 million, while its non-GAAP EPS of $1.16 was in-line with the forecasts. At the same time, the companyâs total payment volume and total transactions increased by 11% Y/Y and 10% Y/Y to $376.5 billion and 6.1 billion, respectively…
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