What Does 13% YTD Drop Mean for PayPal Stock? Buy, Hold or Sell?

Core Insights - PayPal (PYPL) shares have declined 13.7% year to date, primarily due to increased competition in the fintech sector from companies like Visa, Mastercard, Apple Pay, and Adyen [1][2] - Despite PayPal's struggles, Visa and Mastercard have seen share increases of 10.3% and 4.5% respectively, indicating PayPal's relative underperformance [2][7] - PayPal is transitioning from a payments provider to a comprehensive commerce partner, focusing on personalized experiences and a unified platform for consumers and merchants [3][18] Financial Performance - In Q1 2025, PayPal's transaction margin dollars increased by 7% year over year to $3.72 billion, driven by strong performance in omnichannel commerce and Venmo, with Venmo revenues rising by 20% [4][10] - The Buy Now Pay Later (BNPL) segment saw over 20% volume growth in Q1, with monthly active accounts up 18% year over year, indicating strong consumer engagement [5][7] - PayPal's forward 12-month P/E ratio is 13.74X, significantly lower than the industry average of 22.48X, suggesting the stock is undervalued compared to peers like Visa and Mastercard [11][13] Strategic Initiatives - PayPal is expanding its omnichannel strategy internationally, with plans to roll out NFC functionality in Germany and the UK [4][10] - The company is enhancing its partnerships with firms like Coinbase, Fiserv, and Shopify to bolster its growth outlook and expand the adoption of its PayPal USD stablecoin [9][18] - Investments in product modernization and geographic expansion are expected to impact margin improvement in the near term, but are essential for long-term growth [10][18] Earnings Estimates - The Zacks Consensus Estimate for PayPal's 2025 earnings is $5.08 per share, reflecting a 9.25% growth over 2024, with Q2 2025 earnings estimated at $1.30 per share, indicating a 9.2% increase year over year [14][15] - Recent estimate revisions show a positive trend for the second quarter and full years 2025 and 2026, although the outlook for Q3 is less favorable [14][19]