PYPL Outlook: Can Paypal Become an AI Stock?

Stock Market

Paypal (NASDAQ:PYPL) stock has had a rough go of it, but the company has a storied history. It gave Elon Musk his first big profit. Co-founder Peter Thiel became one of Silicon Valley’s leading political players. But that’s all ancient history. What PYPL stock has been doing lately is disappointing investors. Shares are down 22% in 2023. If you put $1,000 into Paypal 5 years ago, you’d have $650 now.

It’s up to Alex Chriss, hired away from Intuit (NASDAQ:INTU) as CEO in August, to change the story on PYPL stock. Chriss’ accomplishment at Intuit was buying Mailchimp, an e-mail marketing firm, for $12 billion, but that will not be his first move here.

Shrink to Win

During his first earnings call as CEO, on Nov. 1, Chriss mainly promised efficiency. “Our cost base remains too high and it’s actually slowing us down,” he said. Expect layoffs by Christmas, which Wall Street is bound to love.

Chriss also wants to get PayPal away from being a pure transaction company. That’s what it became under former CEO Dan Schulman. While that delivered consistent growth, Chriss sees players like Apple (NASDAQ:AAPL) grabbing share in the future. He also knows that Elon Musk’s original name for PayPal was X. The aim of X now to become what PayPal then promised to be, an “everything app” built around money.

The first step remains, however, cutting costs to improve margins. Chriss is buying back shares with extra cash flow, building a war chest. Paypal stock now sells for less than 17 times earnings and barely twice its yearly revenue. Chriss estimated full-year earnings for 2023 at $3.75 per share on his conference call, a raise from previous estimates of $3.49.

That should start the ball rolling.

The AI Growth Strategy

Chriss’ aim is to make PayPal a “platform company,” one that “can create meaningful profiles with the help of AI.”

That starts with using generative AI to enhance automated threat detection and response. Getting checkout systems to spot possible fraud as it happens is the goal. PayPal says the company has already cut its own loss rate in half with such systems, while doubling volumes.

That can also mean using AI to recommend upsells. The company conducted over 300 experiments using AI just in the first half of the year.

But there are risks to expanding outward. The Consumer Finance Protection Bureau (CFPB) wants apps like PayPal to follow the same regulations as banks. The CFPB has already warned customers of PayPal’s Venmo not to store money in their accounts, because it can be lost. PayPal has also been hit with a lawsuit over its transaction fees. Its seven-year old agreements with Visa (NYSE:V) are also drawing scrutiny.

No matter which direction PayPal looks to for growth, it’s clearly going to face competition, not just from other fintech companies but from governments.

The Bottom Line on PYPL Stock

Currently PayPal is being valued like a payment processor, and not a very good one. Fiserv (NYSE:FI), a traditional processor, is valued at almost three times revenue.

Chriss wants to see PayPal valued like a tech stock. If it were, the company’s value could easily double.

But getting there takes more than just saying “AI” or other Internet buzzwords that make you swoon. It means delivering results like those tech companies deliver. The market is not convinced PayPal can do that yet.

But for Chriss, these are early days. I’ve often said I bet the jockey and not the horse, the CEO and his vision matter to me. If Chriss can turn his current plate of buzzwords into results, I’m all ears.

I just want to see more.

As of this writing, Dana Blankenhorn had a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.

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