Why PayPal Shares Soared 10% in August

PayPal Holdings (PYPL -0.80%) The stock rose 10 percent in August, according to data from S&P Global Market Intelligence. The market liked the Q2 update and finally sees a way forward.

Down but not out

PayPal has been one of the biggest success stories of the pandemic, but it hasn’t been able to maintain its leadership coming out the other side. This is not an uncommon story, and many companies are still struggling with the consequences of uneven growth precipitated by a global pandemic.

What marks PayPal’s story is that it is a global leader in fintech, and many new entrants have emerged to meet the growing needs of digitally connected shoppers. PayPal didn’t seem to be keeping up and was in danger of losing ground to competitors.

PayPal’s story is far from over. It has not lost its top spot in fintech and has over 400 million active users. It has processed $1.6 trillion in volume over the past 12 months. But as it faltered, management recognized that something had to change, and fast.

It got a new lease of life with a new CEO, Alex Chriss, last year and seems to be making progress. This came up in big ways in the second quarter. Revenue continues to rise, up 8% year-over-year in the quarter to $7.9 billion. But it was the profitability improvements that stood out, because that’s where it ran into most of its problems. Operating income increased 17% to $1.3 billion and operating margin increased 1.3 percentage points to 16.8%. Earnings per share (EPS) rose 17% to $1.08.

The right way forward

Chriss is making the right moves. He leverages the company’s vast assets, such as its unmatched fintech ecosystem and incredible brand strength, while addressing consumer pain points with a clear strategy.

PayPal has introduced several new features and important updates in recent months that demonstrate its understanding of how to fix its system and create value for users. It offers a checkout page and Fastlane, an option for merchants to retain consumer payment data and autofill at checkout. They make it easier for shoppers to complete purchases and result in better customer satisfaction as well as higher conversion for merchants.

Yesterday, PayPal unveiled PayPal Everywhere, a reimagining of what was supposed to be launched as PayPal’s super app a few years ago. It has a long list of features for users to manage their expenses rather than a full financial app. Includes cash back on select items, tap to pay and many custom features.

These are differentiated solutions that unlock PayPal’s operating power in ways that other companies can’t match. PayPal stock is still well below previous highs, and now looks like a good time to buy.