PayPal Stock Analysis: The One Threat You Can’t Afford to Ignore

If you’re reluctant to invest in PayPal (NASDAQ:PYPL), that’s understandable. It’s difficult for PayPal to protect its market share in the crowded and highly competitive fintech space. However, a moderately sized portfolio position in PayPal stock could still offer excellent returns over the long term.

My previous analysis of PayPal suggested the share price will easily reach $90. Today, in light of a well-known technology company’s intentions in the payments-processing market, I’m moderating my bullish stance. In other words, PayPal is still a great company, but it’s too risky to overload your portfolio with PayPal shares right now.

PayPal’s Notable New Hire

PayPal CEO Alex Chriss called 2024 a “transition year” for the company. As you might expect, the “transition” will include shifting PayPal’s focus toward artificial intelligence (AI) technology.

That’s easier said than done, so PayPal is getting some help from a highly experienced executive. Specifically, the company appointed Srini Venkatesan as PayPal’s new chief technology officer (CTO).

Venkatesan has previous experience at Walmart (NYSE:WMT), Yahoo! and eBay (NASDAQ:EBAY). Chriss emphasized that Venkatesan’s “experience leading technology, digital transformation, and AI personalization from inside some of our largest customers and partners will be invaluable” to PayPal.

It’s a hire that PayPal’s shareholders can celebrate. It shows that Chriss and PayPal are serious about the company’s “transition” and focus on AI-enhanced services. Hopefully, Venkatesan’s positive influence will show up in PayPal’s upcoming quarterly reports.

A Major Threat to PayPal

Maybe you remember a time when PayPal was among a small handful of players in the payments-processing space. For a while, it seemed that old-fashioned credit-card companies were PayPal’s only real competition.

In the 2020s, however, there’s a technology juggernaut seeking to steal PayPal’s share of the market. Of course, I’m referring to the one and only Apple (NASDAQ:AAPL).

Not long ago, Barron’s reported that Apple revealed a “way to simplify transferring money through Apple Cash” at the Worldwide Developers Conference (WWDC). In particular, iPhone users who use iOS 18 “will be able to tap phones with someone else, and swap Apple Cash without having to share personal information.”

This is a problem for PayPal that investors can’t easily ignore. Analysts certainly aren’t overlooking the competitive threats to PayPal. For example, Goldman Sachs analysts are “cautious on branded checkout competitive dynamics longer term, as mobile-based wallets continue to gain share.”

In a similar vein, Threadneedle founder Ann Berry is concerned that PayPal “should be winning on gaining share.” Berry and the Goldman Sachs analysts didn’t mention Apple by name in those quotes, but there’s no denying that Apple has the resources to cause ongoing competitive problems for PayPal.

PayPal Stock: Still a Good Value but Be Careful

With a GAAP trailing 12-month price-to-earnings (P/E) ratio of 14.66x, PayPal certainly isn’t overvalued. Plus, PayPal and Chriss are making a smart move by hiring technology-industry veteran Venkatesan.

On the other hand, I’m reluctant to go full-on bullish about PayPal now. The Apple threat will be a serious, ongoing issue for PayPal.

Therefore, investors should mitigate their risk by only holding a small portfolio position in PayPal stock. Furthermore, for diversification’s sake, it’s not a terrible idea to balance out your PayPal share position with some Apple stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.