Fintech
First-quarter earnings hint at fintech comeback story in the making — TradingView News
Pioneer in the digital payments space, PayPal PYPL The shares are certainly one of the top global fintech stocks to consider. The company constantly explores innovative payment structures and pushes for disruption. The company’s entry into the cryptocurrency sector is an example of the continuous search for different lines of business.
The past year has certainly been difficult for PYPL stock. However, the company has shown resilience, posting strong results in the first quarter.
The company posted excellent earnings growth and achieved a 300 basis point increase in gross margins. This is the kind of beat in terms of earnings and profits that the market wanted to see.
With a forecast free cash flow of $5 billion and a cash reserve of $17.7 billion, the company is well positioned for acquisitions to spur growth amid a stagnant accounts receivable base. Let’s dive into some of the tailwinds and headwinds to consider with this stock.
Investments in Qoala
Omnichannel insurance company Qoala has completed its Series C funding round, raising $47 million led by PayPal Ventures and MassMutual Ventures.
The financing will expand its integrated insurance business in Southeast Asia, enhance AI integration and improve customer, agent and partner experiences. Furthermore, Qoala will explore new products, channels and strategic acquisitions to consolidate its position in the market.
Harshet Lunani, founder and CEO of Qoala, highlighted that the Series C funding reflects the market’s confidence in the company’s mission to democratize insurance. He stressed that the funds would strengthen the company’s ability to foster innovation and have a positive impact on people’s lives.
Alexandros Bottenbruch of PayPal Ventures praised Qoala for its rapid results and effective solutions for consumer platforms and traditional agents in addressing Southeast Asia’s security gap.
Qoala’s growth since 2019 has been impressive, as has their market leadership. Qoala achieved 2.5x growth in gross written premiums and processed 60% of claims internally since its Series B in 2022.
The expanded partnerships and growing profitability highlight its commitment to financial inclusion and sustainable performance, and PayPal’s investment in this company appears to be a bright one.
What makes PYPL stock attractive
PayPal’s resilience isn’t just about growth and competitive advantage. Its financial strength sets it apart. Despite stock fluctuations, PayPal generated $5 billion in operating profit and $4.2 billion in free cash flow last year. This consistent profitability sets it apart from many other growth-focused tech businesses.
Despite significant declines, PayPal is trading well below its peak, presenting an opportunity. Pessimistic sentiment keeps its price-to-earnings ratio low at 15.2 times, a discount to the S&P 500 Index.
Given its strengths, PayPal deserves greater consideration from the market. With sustained revenue and earnings growth, valuation multiples should increase, benefiting shareholders.
The numbers say it all
Over the past year, PayPal shares have trailed the S&P 500, rising just 4.9% compared to the index’s 27.5% rise. Despite a 5% increase in 2024, PayPal still lags SPX’s 11.2% year-to-date gains. PYPL also underperformed the GX Fintech ETF, which is up 26.7% for the year.
Stiff competition from tech giants like Apple, Google and other fintech players has affected PayPal’s performance. The breakup with eBay and inflationary pressures further hindered the company’s growth.
However, following strong first-quarter earnings on April 30, PayPal shares surged. Resilient customer spending and cost reductions have strengthened profitability. Adjusted earnings guidance for fiscal 2024 was raised. Analysts expect EPS growth of 9.3% to $4.13 for fiscal 2024.
Despite mixed earnings surprises, PYPL’s consensus rating remains a Moderate Buy, supported by 41 analysts. I have a similar view on the company, as I think PayPal has the potential to outperform the market, but there are certainly risks worth noting.
As of the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com’s Publishing Guidelines.
Chris MacDonald’s love of investing led him to earn an MBA in Finance and take on numerous leadership roles in corporate finance and venture capital over the past 15 years. His past experience as a financial analyst, combined with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investment outlook.
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