PayPal (PYPL 2.08%) is a leader in digital payments. The Company uses technology to enable people to make digital payments to other PayPal users and merchants who accept PayPal.
The financial technology (fintech) company operates its eponymous payments platform and several other branded and unbranded platforms. Notable brands include peer-to-peer payment app Venmo and shopping experience platform Honey. PayPal also offers a Buy-Now, Pay-Later (BNPL) solution to fund transactions.
PayPal is one of the world’s largest and most ubiquitous digital payment platforms. The company processed a whopping $1.36 trillion in 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 to buying PayPal stock and some factors to consider before investing in fintech stock.
How to invest in PayPal
You can buy PayPal shares in any brokerage account. If you have yet to open one, these are some of the top rated brokers and trading platforms. Here’s a step-by-step guide to buying PayPal stock through the five-star TD Ameritrade platform.
TD Ameritrade makes it easy to buy stocks. It offers a few options to place a trade. The first way is by clicking on the “Trade” tab at the top of the page:
Image source: TD Ameritrade.
From there, click on the “Stocks & ETFs” link. This will bring you to the following page:
Fill out all the relevant information on this page, including the number of shares you wish to buy, the ticker symbol (PYPL for PayPal) and whether you wish to place a limit order or a market order. The Motley Fool recommends using a market order because it guarantees that you’ll buy stock at the market price immediately.
After completing the order page, click on the “Review Order” button at the bottom of the page. Review your trade and carefully ensure you have selected the correct ticker symbol (PYPL for PayPal) and the number of shares you wish to buy. When you’re done, click submit and become a PayPal shareholder.
Another way to place a trade with TD Ameritrade is through the “SnapTicket” box at the bottom of any screen. Clicking on it will take you to the following box:
Image source: TD Ameritrade.
Fill out all order information and click on the “Review Order” button. Review your trade and submit.
Alternative ways to invest in PayPal stocks
Instead of actively buying shares in PayPal directly, you can passively invest in the financial technology company through a fund that owns its shares.
Exchange-traded funds (ETFs) are an easy way to gain exposure to PayPal stock. According to ETF.com, as of early 2023, 279 ETFs held 102.3 million shares of PayPal. The biggest owner was that Invesco QQQ Trust (QQQ 1.66%) with 14.9 million shares. However, PayPal had a relatively small portfolio weight at 0.66% of ETF holdings.
Several ETFs had larger portfolio weights in PayPal stocks. One of the larger ETFs with a larger weighting versus PayPal is the First Trust Dow Jones Internet Index Fund (NYSEMKT:FND). PayPal is the fund’s eighth-largest holding, with a portfolio weight of 3.6%.
Should I invest in PayPal?
Before you buy PayPal stock, you need to determine if it’s the right stock for you. Here are some factors to consider before buying PayPal stock.
Is PayPal Profitable?
Earnings growth is an important factor in the long-term increase in the share price. It’s an ideal area for beginners to focus on before buying shares in a company.
PayPal reported operating income of $3.8 billion in 2022. While that was down 10% year over year, PayPal’s revenue has steadily increased over the years:
Image source: Ycharts.
As this chart shows, PayPal’s rising operating income has propelled its stock price higher since it split from eBay. However, the decline in 2022 has weighed heavily on the stocks. Profits were under pressure due to heavy investment in the platform to improve customer experience. The company believes its investments will drive growth over the long term. It also predicts that cost-saving initiatives implemented in 2022 will drive strong earnings growth in 2023.
PayPal Earnings
Revenue growth also helps boost the stock price, especially for companies that are earlier in their growth cycle. PayPal generated $27.5 billion in net revenue in 2022, up 8% year over year. Increasing active accounts and total payment volumes are helping drive revenue growth.
PayPal has grown its net revenue by an average of 16% per year from 2017 to 2022. The company expects sales to continue growing at an above-average rate in the future.
PayPal rating
PayPal’s stock price has fallen sharply in recent years. As a result, its valuation has become more attractive:
Image source: Ycharts.
With a price-to-free cash flow ratio of 17 times in early 2023, PayPal is trading at a relatively attractive valuation. The S&P500 is trading at about 20 times its free cash flow, and the Composite Nasdaq Index is even higher, about 25 times free cash flow. PayPal’s lower price-to-free-cash-flow ratio means it’s cheaper than broad market indices.
Does PayPal pay a dividend?
PayPal does not pay dividends. However, the company is giving cash back to investors by buying back shares. The company used more than 80% of its free cash flow to buy back $4.2 billion of stock in 2022. In 2023, PayPal plans to use about 75% of its projected $5 billion in free cash flow to buy back stock to use.
Is PayPal publicly traded?
PayPal is a public 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 go public?
PayPal completed its initial public offering (IPO) in 2002. eBay (EBAY 1.05%) acquired the company a few months later for $1.5 billion in stock. PayPal investors received 0.39 eBay shares for each PayPal share they held.
eBay and PayPal parted ways in 2015. Existing eBay investors received one share of PayPal for each share of eBay they owned. PayPal has been trading as an independent public company since its separation from eBay.
The bottom line on buying PayPal stock
PayPal is a leading digital payment platform. It is very profitable and growing fast. Although PayPal’s earnings declined in 2022, the company expects earnings to resume their upward trend in 2023. This speed bump caused shares to tumble, causing shares to trade at a very reasonable valuation. PayPal could be a very rewarding stock over the long term.
Matthew DiLallo has positions in PayPal and eBay and has the following options: short April 2023 $52.50 calls on eBay and short June 2023 $67.50 puts on PayPal. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends eBay and recommends the following options: Short-term April 2023 $52.50 views on eBay. The Motley Fool has a disclosure policy.
