The Humbling of PayPal

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The Humbling of PayPal

Set the dial on your time machine to about fifteen months ago. PayPal’s stock was trading at over $300 a share, with many analysts predicting it would soar even higher. The company was projecting that in just a few years it would double its annual revenues to $50 billion. PayPal’s subsidiary Venmo was growing by great leaps and bounds. PayPal CEO Dan Schulman was holding forth as an economic thought leader in prestigious settings like the World Economic Forum meeting in Davos.

This week, following a tough trading day on Friday after its earning announcement, PayPal stock closed at about $75. Schulman’s explanations about inflation and consumer skittishness didn’t seem to capture the full story.

It’s become commonplace to argue that companies like Square, Stripe, Chime and PayPal bulked up during the pandemic, both because people wanted contactless transaction and the steroid shots provided by government stimulus. PitchBook fintech analyst Robert Le recently said: “Fintech companies were some of the biggest beneficiaries of the pandemic: with a lot of financial services moving online, they were growing the fastest. Because they were growing so fast, a lot of fintech companies hired the fastest as well.” With lockdowns and stimulus payments largely gone, a reckoning period seems inevitable.

While that is of course true, it’s worth noting that PayPal’s stock is trading well below the price it commanded in mid-2019, before anyone had ever heard of COVID-19. That is striking, given that the company’s revenues and total payment volume (TPV) are higher than they were in 2019. There are several reasons for that, specific to PayPal and not just the overstimulated sector: