PayPal (PYPL -2.63%) is a leader in digital payments. The company uses technology to enable people to make digital payments to other PayPal users and merchants that accept PayPal.
The financial technology (fintech) company operates its namesake payments platform and several other branded and non-branded platforms. Notable brands include its peer-to-peer payments app Venmo and shopping experience platform Honey. PayPal also offers a buy-now, pay-later solution to finance transactions.
PayPal is one of the world's largest and most ubiquitous digital payment platforms. The company processed a staggering $1.36 trillion in total payments volume in 2022. It has more than 425 million users, and 79% of the largest retailers in North America and Europe offer the option to pay with PayPal.
Here's a step-by-step guide on buying PayPal shares and some factors to consider before investing in the fintech stock.
How to invest
How to invest in PayPal
You can buy shares of PayPal in any brokerage account. If you still need to open one, these are some of the best-rated brokers and trading platforms. Here's a step-by-step guide to buying PayPal stock using the five-star-rated platform Fidelity.
Fidelity makes it easy to buy stocks. Its website offers a video tutorial and a step-by-step guide. Here's a screenshot of how to place a stock trade with Fidelity:
On this page, fill out all the relevant information, including:
- The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
- The ticker symbol (PYPL for PayPal).
- Whether you want to place a limit order or a market order. The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.
Once you complete the order page, click the "Place Order" button at the bottom and become a PayPal shareholder.
Alternative ways to invest
Alternative ways to invest in PayPal stock
Instead of actively buying shares of PayPal directly, you can also passively invest in the financial technology company through a fund holding its shares.
Exchange-traded funds (ETFs) are an easy way to gain exposure to PayPal stock. According to ETF.com, 275 ETFs held 102.1 million shares of PayPal as of mid-2023. The biggest holder was the Invesco QQQ Trust (QQQ 0.48%), with 15.1 million shares. However, PayPal had a relatively small portfolio weighting at 0.5% of the ETF's holdings.
Several ETFs had larger portfolio weightings of PayPal stock. One of the bigger ETFs with a larger weighting to PayPal is the First Trust Dow Jones Internet Index Fund (FDN 0.82%). PayPal is the fund's eighth-largest holding, with a 3.6% portfolio weighting.
Should I invest in it?
Should I invest in PayPal?
Before buying shares of PayPal, you need to determine if it's the right stock for you. Here are some factors to consider before buying shares of PayPal.
Is it profitable?
Is PayPal profitable?
Profit growth is a big factor in powering stock price appreciation over the longer term. It's an ideal area for beginning investors to focus on before buying shares of any company.
PayPal produced $3.8 billion of operating income in 2022. While that was down 10% from the previous year, PayPal's earnings have steadily risen over the years:
As that chart shows, PayPal's rising operating income has driven its share price higher since its split from eBay.
However, its 2022 decline has weighed heavily on shares. Earnings were under pressure due to heavy investments in its platform to improve the customer experience. The company believes its investments will drive growth over the long term. It also sees cost savings initiatives implemented in 2022 driving strong earnings growth in 2023.
Revenue
PayPal revenue
Revenue growth also helps drive stock price appreciation, especially for companies earlier in their growth cycle. PayPal generated $27.5 billion of net revenue in 2022, an 8% increase from the prior year. Rising active accounts and total payment volumes are helping drive revenue growth.
PayPal has increased its net revenue at a 16% compound annual rate from 2017 to 2022. The company expects to continue growing revenue at an above-average rate in the future.
Revenue
Valuation
PayPal valuation
PayPal's stock price has fallen sharply in recent years. As a result, its valuation has gotten more attractive:
With a forward price-to-earnings (P/E) ratio of less than 14 times in mid-2023, PayPal traded at a relatively low valuation. The S&P 500 traded at about 20 times its forward P/E, and the Nasdaq Composite Index was even higher at almost 29 times its forward P/E. PayPal's lower forward P/E multiple means it's cheaper than the broad market indexes.
Does it pay a dividend?
Does PayPal pay a dividend?
PayPal does not pay a dividend. However, it does return cash to investors by repurchasing shares. The company used more than 80% of its free cash flow to repurchase $4.2 billion in shares in 2022. In 2023, PayPal plans to use about 75% of its projected $5 billion in free cash flow on share repurchases.
Cash Flow
Is it publicly traded?
Is PayPal publicly traded?
PayPal is a publicly traded company. It trades on the Nasdaq Stock Exchange under the ticker symbol PYPL. PayPal has a unique history as a public company.
When did PayPal IPO?
PayPal completed its initial public offering (IPO) in 2002. However, eBay (EBAY -0.96%) acquired the company a few months later for $1.5 billion in stock. PayPal investors received 0.39 shares of eBay for each PayPal share they held.
In 2015, eBay and PayPal separated. Existing eBay investors received one share of PayPal stock for each share of eBay they held. Since the split from eBay, PayPal has traded as an independent public company.
Related investing topics
The bottom line
The bottom line on buying PayPal stock
PayPal is a leading digital payments platform. It's highly profitable and growing fast.
Although PayPal's profits dipped in 2022, the company expects earnings to resume their upward trajectory in 2023. That speed bump caused shares to plunge, which has the stock trading at a very reasonable valuation. PayPal's improving profitability, value-enhancing share repurchases, and attractive valuation mean it could be a very enriching stock to buy for the long term.
FAQs
FAQs on investing in PayPal stock
How do I start investing in PayPal?
To start investing in PayPal, you need to:
- Open and fund a brokerage account.
- Open the order page, and fill out all the relevant information, including the stock ticker (PYPL for PayPal), the number of shares you wish to purchase, and whether you want to place a market or limit order.
- Submit your order to buy shares of PayPal.
Where can I buy PayPal stock?
You can buy PayPal stock with a brokerage account. Shares trade on the Nasdaq exchange.
Is PayPal a good stock for the long term?
PayPal has been an inconsistent long-term investment since its split from eBay in 2015. At one point, shares were up more than 600%. However, as of mid-2023, they had gained about 90%, underperforming the S&P 500's 150% total return. During that period, PayPal produced an average annual return of 7.8% vs. 12% for the S&P 500.
However, that doesn't mean that PayPal can't be a good stock to own for the long term. It generates lots of free cash flow, which it uses to expand and repurchase its attractively priced shares. Meanwhile, PayPal's cost-cutting efforts should improve its profitability, which could boost its stock price.
Has PayPal stock ever split?
As of mid-2023, PayPal had never completed a stock split.
Matthew DiLallo has positions in PayPal and eBay and has the following options: short December 2023 $67.50 puts on PayPal and short October 2023 $52.50 calls on eBay. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends eBay and recommends the following options: short October 2023 $52.50 calls on eBay and short September 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.
