PayPal Stock Surges 39% in 2024, Outpacing S&P 500 for the First Time in Three Years

Shares of PayPal (NASDAQ: PYPL) experienced a remarkable increase of 39% in 2024, as reported by S&P Global Market Intelligence. This is significantly higher than the S&P 500's return of just 23.3% for the same period.

It has been a challenging journey for PayPal in the past few years. The company struggled to keep pace with the S&P 500, underperforming for three consecutive years. By the end of 2023, the stock had fallen back to levels seen in 2017.

Year	2020	2021	2022	2023	2024
PayPal stock performance	117%	(19%)	(62%)	(14%)	39%
S&P 500 performance	16%	27%	(19%)	24%	23%

This table indicates how PayPal's stock performance has fluctuated compared to the S&P 500 over the years.

In 2024, PayPal benefitted from significant improvements in profitability. For context, the company's free cash flow peaked at $5.4 billion in 2021. In 2023, this figure dropped to $4.2 billion. However, in 2024, PayPal is projecting free cash flow to reach $6 billion.

In summary, PayPal's profits are trending towards all-time highs, while its stock price was at multi-year lows at the beginning of the year. This combination positioned PayPal to achieve its first market-beating performance since 2020.

Reasons Behind PayPal's Profit Increases

A few factors are contributing to PayPal's improved financial performance. Although the company's top-line growth is not astounding—its revenue increased by less than 8% during the first three quarters of 2024 compared to the same period in 2023—there have been improvements in its transaction margin.

The transaction margin is akin to gross margin and reflects the cost of processing transactions against the revenue generated. In the first quarter of 2024, PayPal's transaction margin was 45%, followed by improvements to 45.8% in the second quarter and 46.6% in the third quarter. This is the first time in a while the company has shown such positive trends.

Additionally, PayPal has managed to reduce its key operating expenses as a percentage of revenue. Overall, this results in higher revenue, improved margins, and reduced operating costs, all leading to a potential increase in free cash flow to record levels.

Future Outlook for PayPal Shareholders

PayPal's Braintree division plays a crucial role in the growth of its transaction margins. This unbranded checkout solution has been a focus for the company's new CEO, Alex Chriss, since he took over in late 2023.

This shift in priorities appears to be paying off, and it is reasonable to expect ongoing enhancements moving forward.

Furthermore, PayPal is utilizing all of its free cash flow for stock repurchases, effectively reducing share count and gaining momentum in this area.

Currently, PayPal stock is considered attractive as it trades at a low valuation of 12 times its free cash flow. With a low valuation and a rapidly decreasing share count, there could be significant upside potential for PayPal stock in 2025.

PayPal, Stock, Performance