PayPal stock analysis has been gaining momentum lately, especially after the company (NASDAQ:PYPL) announced its strategic partnership with Amazon (NASDAQ:AMZN). This collaboration integrates PayPal services with Amazon Prime’s Buy with Prime feature, offering a seamless checkout experience for millions of Amazon users. But does this make PayPal stock a buy? Let’s dive into PayPal’s latest moves, financials, and market sentiment to assess its investment potential.

PayPal’s Role in the Digital Payments Landscape

PayPal Holdings, Inc. is a major player in the fintech sector, providing secure and convenient payment solutions globally. With a market cap of approximately $80 billion, the company is known for its comprehensive suite of digital payment platforms like Venmo and Braintree, which are used for everything from online purchases to money transfers.

Year-to-date, PayPal stock has risen around 26%, slightly outpacing the S&P 500 index’s gain of 20%. However, investors are looking closely at how recent partnerships, such as with Amazon Prime, could propel the stock even further.

Amazon Partnership: Boost or Bust?

In a major strategic move, PayPal formed a partnership with Amazon’s Buy with Prime feature on September 18th. This allows Prime members to link their Amazon account to PayPal, making it easier to access free shipping benefits when using PayPal for purchases on participating merchants’ websites.

Wall Street analysts have responded positively to this collaboration. Keefe Bruyette, for instance, views the partnership as a solid, albeit incremental, growth avenue. The firm retained its “Outperform” rating on PayPal with a $78 price target. Similarly, Goldman Sachs and Morgan Stanley see the partnership as a “directionally positive” move, although they note that the financial impact may not be immediately significant.

Expanding Partnerships Beyond Amazon

Apart from Amazon, PayPal has recently deepened its alliances with other key players. The expansion of its partnership with Shopify (NYSE:SHOP) in the U.S. allows PayPal to serve as an online credit and debit card processor for Shopify Payments. This integration not only simplifies payment processes for merchants but also extends PayPal’s reach to Shopify’s vast network, potentially boosting PayPal’s revenue and transaction volumes.

Moreover, PayPal has strengthened its ties with Fiserv (NYSE:FI), streamlining how Fiserv merchants can offer PayPal, Venmo, and related services to customers. This expanded relationship could significantly improve PayPal’s market share in the long term.

PayPal’s Strong Q2 Financial Performance

In Q2, PayPal delivered impressive financial results that surpassed Wall Street’s expectations. Revenue rose by 8.2% year-over-year to $7.9 billion, driven by a rise in transaction volumes and an increase in payments made via Braintree, PayPal, and Venmo. The operating profit margin also improved to 18.5%, beating its guidance of 16.8%. Additionally, PayPal increased its EPS outlook for the year, projecting adjusted EPS growth in the low to mid-teens for fiscal 2024.

The company’s Total Payment Volume (TPV) also grew 11% to $416.8 billion, with significant gains in both domestic and international markets. By the end of Q2, PayPal had 429 million active accounts, up by about 2 million from the previous quarter.

Analyzing PayPal’s Valuation and Market Sentiment

In terms of valuation, PayPal is currently trading at 17.75 times its projected earnings for next year, which is significantly lower than its five-year average of 31.28x. Compared to its peers, Visa (NYSE:V) and Mastercard (NYSE:MA), which trade at 27.51x and 34.04x forward earnings respectively, PayPal looks like a bargain.

The options market also hints at potential upward movement. Based on the current straddle pricing, the market suggests that PYPL stock could see a price swing of around 6% by the October expiration. Additionally, there’s a notable bullish sentiment, as open calls outnumber open puts by about eight times, indicating optimism for the stock’s future performance.

Analyst Ratings and the Bottom Line

Currently, PayPal stock holds a “Moderate Buy” rating among Wall Street analysts. Of the 41 analysts covering the stock, 16 rate it as a “Strong Buy,” and 22 maintain a “Hold.” With a mean price target of $78.20, PayPal trades near its consensus target, yet some analysts see an upside potential of up to 62% from its current levels.

In conclusion, PayPal’s partnership with Amazon, along with collaborations with Shopify and Fiserv, positions it for long-term growth. Coupled with strong Q2 financial results and a valuation that suggests the stock is undervalued compared to its peers, PayPal could be an attractive buy for investors looking for exposure in the digital payments sector.

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