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Shares of PayPal Holdings Inc. have been pummeled in recent days after the e-commerce company gave a disappointing forecast and announced a change in its business strategy, but one analyst still sees shine in PayPal’s story.
Mizuho’s Dan Dolev wrote Friday that PayPal’s
PYPL,
narrative has “four silver linings” despite the “epic de-rating” of PayPal’s stock. The shares fell 22.9% on the week of PayPal’s holiday-quarter earnings report, and they’re off nearly 60% from the company’s all-time closing high of $308.53 established in July 2021.
See more: PayPal stock dives to worst day on record after ‘ugly’ earnings report
Dolev was encouraged that PayPal’s total payment volume per user appears to have bottomed in the third-quarter as fourth-quarter trends improved. The metric captured the value of transactions going through PayPal’s platform, measured on a per-user basis while excluding merchant accounts.
“Our analysis shows that PYPL’s share price (lagged by one quarter) closely tracks incremental TPV per user,” he wrote, noting about $70 in TPV per user in the fourth quarter, up from $68 in the third. “If this metric continues to improve, the stock is likely to follow, in our view.”
Further, Dolev saw improvement in PayPal’s take rate when excluding eBay volumes. The ex-eBay take rate, which represents the cut that the company gets of each transaction, rose to 2.03% in the fourth quarter, up from 1.98% in the third quarter and 1.95% in the second quarter, he noted.
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Incremental growth in TPV, when excluding eBay and peer-to-peer volumes, improved as well from the third quarter to hit $55 billion, Dolev noted. While that number came in below the second-quarter high, it was better than PayPal’s performance in each quarter of 2020.
Finally, PayPal showed more incremental transactions per active account in the fourth quarter than it did in the third quarter, according to Dolev.
“Better engagement trends bode well for PYPL, especially given the company’s pivot on user strategy,” he wrote. “Since PYPL is weighting its focus more towards customer retention and improving engagement of existing customers, this metric is becoming increasingly important.”
See more on PayPal’s changing strategy
Dolev kept a buy rating on PayPal’s shares, though he reduced his price target to $175 from $200 in Friday’s note to clients.
