PayPal Stock Q4 Forecast: Can PYPL Continue to Go Up?

After a lengthy slog, PayPal (PYPL) investors finally have something pleasant to talk about. With YTD gains of nearly 30%, the fintech name is outperforming the S&P 500 Index ($SPX). While the single-digit outperformance might not be something that one would usually brag about, it comes after three consecutive years of massive underperformance.

PYPL closed in the red in each of the previous three years, even as the broader markets delivered double-digit returns in two of them. Incidentally, the stock fell 62% in 2022 amid the tech crash, notching its worst yearly performance since its 2015 split from eBay (EBAY).

Previously, 2024 was looking like another dismal year for PayPal, as the stock closed in the red for the first half – missing out on the mega tech rally. However, thanks to its 36.8% returns over the last three months, the stock has not only recouped its losses, but is now outperforming the markets. 

Today, PYPL stock is extending its positive momentum, with investors cheering news that PayPal is rolling out cryptocurrency capabilities to its U.S. merchant accounts in an expansion of its retail-level offerings.

In this article, we’ll look at the Q4 forecast for PayPal, and analyze whether the stock can continue its good run and build on its recent gains.

Why Has PayPal Stock Been Going Up?

PayPal stock has been rising as markets were a little too pessimistic about the company previously. It seems even PayPal was a bit conservative about its earnings potential, and the company has been gradually raising its guidance.

At the beginning of the year, PayPal forecasted flat earnings growth for 2024, only to raise it to “mid-to-high single digits” growth during the Q1 earnings call. During the Q2 earnings call, the company said that it now expects adjusted earnings to grow by a “low to mid-teens percentage” in 2024.

One of the sore points with investors has been PayPal’s dwindling operating margins, which have fallen prey to competition from the likes of Apple (AAPL) and Alphabet (GOOG) as they have ventured into the digital payments space. However, PayPal’s GAAP operating margin expanded by 126 basis points to 16.8% in Q2 - and while that's still below the 18.1% that it managed in the corresponding quarter of 2020, it nonetheless shows incremental improvement.

Wall Street Has Been Getting Bullish on PayPal

Wall Street analysts have also been gradually warming up to PayPal, as many discover that the company’s woes are not as severe as they once thought. Since late July, analysts at William Blair, Bernstein, and Argus have upgraded PYPL stock.

Most recently, Deutsche Bank analyst Bryan Keane raised PYPL’s target price from $74 to $94. PayPal has a consensus rating of “Moderate Buy” from analysts, while the stock’s mean target price of $78.20 is slightly below today's prices.

PayPal Stock Q4 Forecast: There's Still Room to Rally

PayPal’s Q4 forecast looks positive, and there is room for the stock to run higher from these levels, given the still-reasonable valuations. 

That said, amid the recovery in its stock price, PayPal’s valuation multiples have expanded, and it now trades at a next 12-month (NTM) price-to-earnings (PE) multiple of 17.1x. For context, at its bottom in Q4 2023, PayPal’s NTM PE multiples plunged into single digits. 

However, as PayPal returns to growth, the multiples have also adjusted upwards.

PayPal Has Several Growth Drivers

PayPal has reiterated multiple times that it is focusing on profitable growth, and during the Q1 2024 earnings call, CEO Alex Chriss said that the company is “in the early innings of driving a meaningful and comprehensive transformation of PayPal to deliver the sustainable and high-quality growth."

These transformation measures have started to pay off, as reflected in PayPal’s financial performance. Q2 transaction margin dollars rose 8% YoY, the company’s best performance on the metric since 2021. PayPal has also been looking to cut down on its cost base, and announced layoffs, among other measures.

PayPal has several growth drivers, and along with the online channel, it is now expanding into the offline channel, where the company finds small businesses as an untapped segment. It has also been expanding its partnerships, and earlier this month, Amazon (AMZN) said that it would add PayPal as a payment option to Buy with Prime. Separately, PayPal said it would process credit and debit card transactions for Shopify (SHOP) Payments payments in the U.S.

PayPal has launched an accelerated guest checkout option called Fastlane, which it says has a higher conversion ratio of 80%. While Fastlane might not be a major revenue contributor in 2024, it is a significant driver for 2025 and beyond.

PYPL Stock Still Looks Like a Buy

Notably, while raising PayPal’s target price, Keane said, “While PYPL will not realize any material pricing benefits from Fastlane through the remainder of fiscal 2024 as the company is looking to drive adoption from merchants before beginning to price for value, we do believe that pricing benefits from Fastlane will begin in 2025 and gradually ramp over time.”

Overall, I believe that PayPal’s rally still has legs and it can run higher from these levels. However, the scope for PE expansion is now limited, and the company will need to deliver growth for the stock to go higher.

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