PayPal Stock Forecast as Stripe and Advent Abandon Buyout Offer

PayPal stock suffered a big reversal in the premarket session, erasing some of the gains made in the past few weeks. It plunged by over 13% to $53, down sharply from this month’s high of $62.37. This retreat will be in focus in the coming days as investors assess the implications of the new developments.

PayPal Stock Drops as Buyout Offer Fails

PYPL stock bottomed at $40.45 in June and then made a parabolic move after reports emerged that Advent and Stripe were eying an acquisition bid. This buyout, worth over $50 billion, would have been one of the biggest take-private deals in the United States.

The buyout would also have solidified PayPal’s fall from grace. While $50 billion is a big number, it is also much lower than its all-time high of over $300 billion, which it reached a few years ago.

It is not clear why the two companies decided to abandon the deal. One of them is that they disagreed with the management on the right price. PayPal’s management likely believe that the company has more room to grow. Besides, it is now led by a new CEO, Enrique Lores, who believes the company has more room to grow.

The challenge, however, is that many recent PayPal investors bought it for the hope that it will be acquired. Most notably, there was hope that there would have been a bidding war for the company, which would have boosted its stock.

PayPal Faces Major Challenges as a Standalone Company

The end of its acquisition bid presents major challenges for a company that is struggling to grow as competition rises. This competition is happening across its branded and unbranded businesses. It is coming from companies like Google, Apple, Amazon, and Stripe.

PayPal’s growth has stalled, with the management focusing on financial engineering to boost its stock. This engineering, through share buybacks, has significantly reduced the amount of outstanding shares in the past few years, moving from over 1.156 billion in 2022 to 862 million today. The buybacks have not been enough to boost its performance.

The most recent quarterly results showed that its active accounts remained unchanged at 439 million, with the monthly active accounts rising by just 1%. The number of transactions per active account rose by just 3%.

The company’s revenue rose by just 5%, with its earnings-per-share falling by 1% to $1.38. This is significantly slow growth considering that the blended earnings growth of companies in the S&P 500 Index was 50.4%.

The main challenge is that the company has no clear way to boost this revenue growth because it lacks a clear competitive advantage.

On the positive side, the company can decide to spin off Venmo, its peer-to-peer business. Venmo’s revenue is still growing by double digits, with PayPal expecting it to hit a $2 billion in revenue this year. It has over 100 million users, and may fetch a $10 billion – $15 billion valuation.

PayPal Stock at Risk of Further Declines

The daily chart shows that PayPal stock is at risk of more downside. Before the current crash, it was forming a rising wedge pattern, which is made up of two ascending and converging trendlines. This price action often leads to a bearish reversal over time.

The Relative Strength Index (RSI) was also forming a bearish divergence pattern. This is a situation where the RSI makes a series of lower lows when an asset is in an uptrend.

Therefore, the most likely scenario is where it continues to fall further in the coming days, potentially to the key support level of $48.