Is PayPal a Millionaire Maker?

During the height of the COVID-19 pandemic, PayPal (NASDAQ: PYPL) was a monster stock. The price soared 256% in the 16 months leading up to the peak in July 2021. Unsurprisingly, rapid growth and adoption of its payments platform excited the investment community.

But the fintech stock has had a disappointing run since then, and it now trades for about 70% off that all-time high. This is even after the shares rocketed 50% higher since mid-July 2024.

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There are reasons to believe that PayPal is a quality business. But is it a millionaire maker?

Steady growth

PayPal's revenue surged 21% in 2020 and 18% in 2021, thanks to strong online shopping demand during the pandemic. Consumers hesitated to go to brick-and-mortar stores, and they had extra cash from stimulus checks. PayPal benefited from rapidly rising total payment volume (TPV) and sales during this time, which lifted the stock.

That monster growth is no longer the case. Economic conditions have normalized, and in-store shopping has returned. This hasn't prevented PayPal from continuing to expand, though.

Sales rose 6% in the three-month period ended Sept. 30, driven by 9% year-over-year TPV growth that totaled $423 billion. Alex Chriss, PayPal's chief executive officer, has done a nice job of product innovation. For example, PayPal's FastLane speeds up the checkout process. And PayPal is finding success launching new partnerships with the likes of Amazon and Shopify.

Looking out over the long term, investors have every reason to be optimistic that PayPal's solid growth trajectory will continue. E-commerce represents less than 17% of total retail spending in the U.S. PayPal's branded digital wallet, with 71% adoption among U.S. adults (and 39% for Venmo), is clearly in a favorable position.

Key competitive strengths

PayPal has been at the forefront of electronic payments for more than two decades. During that time, it has developed some important competitive advantages.

The brand's strength may not always get the credit it deserves, but it is critical to PayPal's success. The business is known for convenient, secure, and fast payments that both consumers and merchants have come to appreciate. PayPal has developed a leading position in online commerce thanks to this.

Network effects also support PayPal's industry position. As of Sept. 30, the company had 432 million active accounts, consisting of both individuals and merchants. As more users join, the platform becomes increasingly valuable to everyone.

PayPal's ability to collect huge amounts of data on transactions is also critical. This helps reduce fraud and boost authorization rates. Additionally, the business has decided to leverage its data trove to introduce an advertising platform for merchants to better target shoppers.

The path to $1 million

It's almost impossible to predict whether a stock can turn investors into millionaires one day. However, PayPal's durable growth and competitive strengths certainly resemble traits of a high-quality business. It's also very profitable, with an operating margin in the high teen percentages.

Another reason to be bullish is the valuation. The shares trade at a forward price-to-earnings ratio of less than 19. That's a very compelling entry point for prospective investors to gain exposure.

One area of concern the market might still have is the competitive landscape. PayPal has carved out a powerful position in the industry. However, formidable opponents are jockeying for their piece of the lucrative payments market. This just means that PayPal will have to keep finding ways of boosting engagement and monetizing this activity.

If you're able to invest a large amount up front, as well as extend your time horizon, then maybe this stock could make you a millionaire. But putting such a lofty prediction aside, I think PayPal at least deserves a closer look from investors as part of a diversified portfolio.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, PayPal, and Shopify. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.