PayPal's Competitive Position Is Solid but It Is Exposed to Any Turn in the Economy

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company ran into headwinds as the positives from the pandemic reversed and new competition arose. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation, with the ultimate goal of shifting toward more profitable growth. We see this evolution as the right move, but it will likely take some time to fully see the results. Additionally, PayPal's online focus leaves it relatively exposed to a downturn in the economy, as online purchases tend to be discretionary. If the macro picture changes for the worse, this could swamp any underlying improvements in the near term.