After three years of disappointing performance, PayPal stock (NASDAQ:PYPL) has rebounded in 2024, surging 48% year-to-date. The payment giant has outpaced the S&P 500 Index (NYSEARCA:SPY), regaining investor interest after a period of lackluster growth. With its current price still below one-third of its 2021 peak, investors are questioning whether the rally can continue into 2025.

PayPal’s Transformation Journey

PayPal’s turnaround story began with a leadership shakeup in 2023. Under the guidance of CEO Alex Chriss and CFO Jamie Miller, the company has focused on profitable growth and innovation. Chriss has acknowledged that PayPal had fallen behind on innovation but is determined to change that trajectory.

One key initiative has been the rollout of new checkout experiences, designed to improve conversion rates significantly. According to Chriss, these updates have delivered a 100–400 basis point lift in conversion rates, depending on the checkout type.

Moreover, PayPal is strengthening partnerships with major players like Shopify (NYSE:SHOP), Fiserv (NASDAQ:FI), Adyen (OTC:ADYEY), and Amazon (NASDAQ:AMZN). Expanding its PayPal Complete Payments service geographically and prioritizing Venmo as a growth driver for 2025 are also central to its strategy.

Challenges in a Competitive Landscape

Despite the positive momentum, PayPal faces stiff competition from Apple Pay (NASDAQ:AAPL), Google Pay (NASDAQ:GOOGL), and Block’s (NYSE:SQ) Cash App. These competitors have pressured PayPal’s transaction margins, with its take rate continuing to decline.

Additionally, falling interest rates are expected to reduce earnings on customer balances, posing a headwind for 2025. While PayPal’s transformation has unlocked initial gains, achieving further growth will require navigating these challenges.

Analysts’ Take on PayPal Stock for 2025

Of the 43 analysts covering PayPal stock, opinions remain mixed. While 19 analysts rate it as a “Buy” or “Strong Buy,” 23 recommend holding the stock, and one suggests selling.

The average target price for PYPL is $90.23, slightly above its current trading levels. Bank of America recently upgraded PayPal to a “Buy” with a price target of $103, citing its robust free cash flow and aggressive share buybacks as key positives.

The company’s buyback program is noteworthy, with $6 billion allocated in 2024, representing a 6.7% buyback yield. Analysts believe this could drive earnings per share (EPS) growth and potentially lead to PayPal initiating a dividend in the future.

Valuation and Growth Prospects

PayPal trades at 19.3x its forward earnings, which is below the S&P 500 average. While this suggests the stock is not overvalued, much of the valuation recovery may already be priced in.

The company’s EPS is expected to grow by 20% in 2024 but is projected to rise by just 7% in 2025. However, these estimates may be conservative, as PayPal’s share buybacks are likely to boost per-share earnings.

Is PayPal Stock a Buy for 2025?

PayPal’s strong 2024 rally, coupled with its transformation initiatives, makes it an intriguing investment. However, the margin of safety at current levels is significantly lower than it was earlier this year.

For long-term investors, holding the stock may be a reasonable approach, as PayPal’s fundamentals remain solid. The focus on innovation, strategic partnerships, and free cash flow generation positions the company well for future growth.

That said, for new investors, initiating a position at these levels may require a higher tolerance for risk. PayPal’s competitive challenges and reliance on transformation gains mean further growth will not come easy.

Final Thoughts

PayPal stock (NASDAQ:PYPL) has shown remarkable resilience in 2024, recovering from years of underperformance. While the company’s transformation journey has just begun, its initiatives are yielding promising results.

For investors considering PayPal for 2025, the stock represents both opportunity and caution. Long-term growth potential exists, but much of the immediate upside may already be reflected in its current price.

As PayPal navigates a competitive landscape and works to deliver sustained growth, its ability to balance innovation with profitability will be key to its success.

Featured Image: Megapixl ©Andreistanescu

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