Why PayPal plummeted sharply by 42% from its peak?


PayPal in my two books

In my book “The Rules of Super Growth Stocks Investing“:

  • In sections 3-5, pages 208-215, when introducing the new growth industries of financial technology, the company PayPal (ticker: PYPL) is used as an example. Pages 210-213 in Sections 3-5 provide a detailed introduction to the operations of PayPal, the company’s products, and its achievements.

In the book “The Rules of 10 Baggers“:

  • Section 5-7, pages 247-251, the entire section is dedicated to introducing the company Block (ticker: SQ) and also mentions the comparison and differences with PayPal.
  • On page 299 of Section 6-5, PayPal is used as an example to illustrate the impact of the company’s financial guidance and outlook on stock prices.
  • Pages 160-161 of Section 3-5 illustrate the dominance of an e-commerce platform giant like Amazon (ticker: AMZN) and its huge influence on the payment industry. Readers may also refer to my other post for a detailed explanation of this topic: “Amazon’s dominance by its economic scale, impact share price of PayPal, Affirm, Fair Isaac, Visa, and Mastercard

PayPal’s stock price has not performed well this year

PayPal (ticker: PYPL) last year’s share price rose 114%, but this year (as of 11/23/2021) has plummeted by 20%! And most of the decline occurred in the last three months. Why did the representative enterprise of the new generation of financial innovation (Fintech) be so? To put it simply, there are several reasons:

  • Last year, the stock price went too far.
  • The impact of a series of major industry-related events that have occurred in the past three months.
  • The rapid evolution of payment trends.

These things caused such a decline that everyone could not predict and beyond everyone’s expectations, because the competitiveness of a leading manufacturer cannot be lost within three months; the details of these influencing factors are discussed in this article.

Quarterly revenue growth rate decelerates

Wall Street and the capital market are fair, and investors are smart and fair. From the table below, the revenue growth rate of PayPal in the past few quarters this year is indeed not very good compared with the same period last year, or even said to be bad. But don’t forget that last year PayPal was the biggest boost to its revenue due to the help of the COVID-19 pandemic. But the capital market and investors are fair. Last year’s revenue growth has been reflected in PayPal’s stock price increase last year. Please note that the pandemic started in the second quarter of last year!

Quarterly revenue (in US$)Quarterly revenye growth
Q1 2020 4.62+11.9%
Q2 2020 5.26+22%
Q3 2020 5.46+24.7%
Q4 20206.12+23.4%
Q1 20216.03+30.5%
Q2 2021 6.24+18.6%
Q3 2021 6.18+13.2%

PayPayl’s market share

According to a report by Statista in 2020, 80% of the top 100 retailers in the United States have provided PayPal payment options. Not only that, more than 70% of online buyers in the US have a PayPal account. These two data fully prove the strong penetration rate of PayPal.

Lose eBay

In July 2015, PayPal was spun off from the former parent company eBay (ticker: EBAY) and independently listed on the US stock market. Since then, the company’s business has performed very well, and the stock price has risen all the way. However, in February 2018, eBay announced that the default payment option of its e-commerce auction platform would be switched from PayPal to the Dutch payment giant Adyen (ticker: ADYYF); the impact was too great, and PayPal is still a platform option until 2023.

However, eBay is still the top five auction e-commerce companies in the United States, and the demand for payment is huge. The loss of this golden goose has really caused a great impact to PayPal. The following is what I have compiled for you. In recent years, eBay has accounted for the percentage of PayPal’s transaction volume (TPV):

Period Account for total TPV of PayPal
Q3 20213%

Obviously, the percentage of eBay’s in total PayPal transaction volume has been declining year by year. The main reason is that PayPal has expanded other businesses and customers. Another reason is of course eBay’s gradually walked away from PayPal. Conversely, thinking that if you don’t lose eBay, it will greatly help PayPal’s revenue. This is certain.

Amazon’s deliberate obstruction

PayPal has been trying to step into the Amazon platform for a long time, trying to share the huge payment pie on the Amazon e-commerce platform, but it has been obstructed by Amazon (Amazon has its own Amazon Pay, but it is very unsuccessful; and it is a direct competitor with PayPal) and did not gain much ground or advantages there (such as exclusive payment methods, preferential rates, convenience, assistance in promotion, etc.)

Investors may think this is no a big deal, but what I want to express is that Amazon is one of the very few platform in the world who dare to resist PayPal. There is no other reason, because Amazon dares to do so with the backing of its amazing economic scale, and PayPal’s main business is online payment, which happens to be the main source of PayPal’s business revenue.

On November 11, 2021, Amazon announced the cancellation of the payment option for Visa (ticker: V) in the UK. In the following several days, not only did the stock prices of Visa and Mastercard (ticker: MA) plummet, but also caused the share prices of other payment companies. It has fallen for many days. PayPal is the leader in the industry, and it is naturally impossible to escape. The company’s stock price has broken through US$ 185, which is unimaginable.

BNPL fintech’s competition

After years of hard work, it’s fine if there is no progress on the Amazon platform, but in the last one or two years, a new payment method of BNPL has emerged, subverting the old payment method of financial technology companies led by PayPal.

Although PayPal itself hurriedly launched a similar Pay in 4 service, it was too late; because consumers are actually anchored, they do not think that PayPal is the provider of BNPL (this is a human psychological bias, irrelevant to the facts) ), and the Pay in 4 service launched by PayPal cannot be differentiated and has no fundamentally strong appeal, causing failure in the young people market, because most of the people who use BNPL services are young people.

The bad idea of acquiring Pinterest

Since the beginning of this year, the stock price of PayPal has been weak, and the management team ran into the common problem of mature large companies, Institutional imperative , and it has been whimsical to invest in irralative areas — want to grow through mergers and acquisitions. It came up with a bad idea to acquire Pinterest. In all respects, it is unreasonable: Pinterest has stagnated, and the two businesses are not complementary at all. It means the acquiring is ridiculous.

If this transaction is completed, it will be the largest acquisition in the consumer Internet field in the past 10 years. This idea was revealed by the media on 10/22/2021, and PayPal’s stock price plummeted by more than 7% in two consecutive trading days. Almost no shareholders of Wall Street and PayPal voted in favor, causing the market value to continue to shrink, forcing PayPal to cancel this acquisitions that are completely unreasonable. But it was too late and did not stop the stock price from falling.

credit: Marques Thomas

Affirm is available on Amazon.com

The Amazon cooperation case failed. Seeing that the new BNPL operator Affirm began to enter the Amazon platform, and Amazon announced the cancellation of the Visa payment option in the United Kingdom, If the lips are gone, the teeth will be cold, causing PayPal’s share price to drop below US$ 185 and it has fallen as high as 42% from the all time high (as of 11/23/2021)!

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