Here's Why Paypal Stock Is A Buy Before Feb. 3

PayPal (NASDAQ: PYPL) was a big winner in 2024, with shares rising by 39% for the year. This handily outpaced the S&P 500 and even beat the high-flying Nasdaq Composite index by more than 10 percentage points.

However, PayPal's stock still looks rather cheap by most metrics, and that's especially true considering how much progress the new management team has already made. With the company expected to report its year-end 2024 results on Feb. 4, now could be a great time to take a closer look.

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PayPal is a cash machine that has made excellent progress

Before we dive into the catalysts for 2025 and beyond, it's important to take a step back and discuss the current state of PayPal's business and the progress already made in its turnaround efforts.

PayPal is still a massive payment processor, with 432 million active users between its PayPal and Venmo platforms. It processed about $1.7 trillion in annualized payment volume in the third quarter of 2024 (the latest to be reported) and is a highly profitable business. It generates about $6 billion in annualized free cash flow and has more than $16 billion in cash and short-term investments on the balance sheet.

If you aren't familiar with PayPal's recent history, it was one of the most impressive momentum stocks of the COVID-19 era, as many consumers were effectively forced to move their shopping online. However, growth fizzled out as the pandemic came to an end, and the company's leadership team didn't seem to have a clear growth strategy.

In late 2023, PayPal decided to completely overhaul its leadership team by bringing in former Intuit executive Alex Chriss as CEO and replacing the company's senior leadership. To name just a few, PayPal hired the former head of Walmart's omnichannel platforms and tech as its chief technology officer, the former head of Fiserv's global business solutions as president of Global Markets, and former SoFi CFO Michelle Gill to lead its Small Business and Financial Services Group. Put mildly, PayPal's new executive team is an all-star collection of talent.

Chriss and his team initially focused on efficiency and cost savings, and this is apparent in the recent results. In the most recent quarter, PayPal's revenue increased by just 6%, but its operating margin expanded by nearly two full percentage points, and adjusted EPS grew by 22% year over year.

Lots of initiatives, but most aren't in the numbers yet

In PayPal's year-end 2023 earnings report, Chriss referred to 2024 as a "year focused on execution." And the management team was certainly busy with innovation and new growth initiatives.

Just to name the most significant:

• In the fall, PayPal launched its Fastlane checkout product, which makes it easier than ever to pay online. It has already formed partnerships with companies such as Adyen and Fiserv.
• Also in the fall, PayPal launched its PayPal Everywhere campaign (its largest ad campaign ever), which includes a class-leading cash-back debit card product.
• PayPal recently partnered with Shopify to become a checkout option for Shopify's U.S. merchants (previously, the Shopify partnership was only in France).
• PayPal announced the creation of an advertising platform to help leverage its massive amount of spending data. It hired the former head of Uber's advertising to run it, and it officially launched in October 2024.

One key takeaway is that none of these are reflected in any numbers the company has reported yet. We could start to see how they're performing when we get fourth-quarter results in a few weeks, but 2025 should be the year when we finally see how these initiatives are playing out.

In addition to PayPal's Feb. 4 earnings release, management will hold its earnings call at 8 a.m. ET on the same date. We could also get some more color on how the recent initiatives are progressing, even beyond what is reflected in the numbers that will be released.

A great risk-reward investment right now

PayPal has fallen by about 11% over the past month as interest rate headwinds and economic uncertainty have weighed on the markets. It now trades at about 17.5 times forward earnings despite having an excellent combination of profitability and growth potential. As mentioned, most of management's efforts haven't shown up in the numbers just yet, but if they do when PayPal reports its fourth-quarter results in early February, the stock might not be as much of a long-term bargain as it is today.

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Matt Frankel has positions in PayPal, Shopify, and SoFi Technologies and has the following options: short June 2025 $120 calls on Shopify. The Motley Fool has positions in and recommends Adyen, Intuit, PayPal, Shopify, Uber Technologies, and Walmart. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.