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

Shares of the financial technology company PayPal (NASDAQ: PYPL) appreciated by 39% in 2024, as reported by S&P Global Market Intelligence, significantly outperforming the S&P 500, which returned only 23.3% during the same period.

It has been notable that PayPal has not been a market leader in recent years. In fact, the stock experienced underperformance relative to the S&P 500 for three consecutive years prior to this rise. By the end of 2023, the stock price had fallen to levels comparable to those 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%

In 2024, PayPal experienced substantial profit improvements. To illustrate, the peak level of the company’s free cash flow occurred in 2021, reaching $5.4 billion. In contrast, 2023 saw a decline to $4.2 billion. However, projections for 2024 indicate a rebound in free cash flow, expected to reach approximately $6 billion.

In essence, PayPal’s profits are on an upward trajectory toward record levels, which is particularly significant given that the stock price was at multi-year lows at the year's start. This scenario set the stage for PayPal to achieve its first market-beating year since 2020.

Reasons Behind PayPal's Profit Growth

Several factors contribute to the improvement in PayPal's financial performance. Although the company is not garnering significant attention for revenue growth—the revenue from the first three quarters of 2024 increased by less than 8% compared to the same period in 2023—there are positive signs in terms of its transaction margins and operating expenses.

The transaction margin is a critical metric that reflects the difference between the cost of processing transactions and the revenue generated, similar to gross margin. In the first quarter of 2024, the transaction margin was at 45%, increasing to 45.8% in the second quarter and reaching 46.6% by the third quarter—indicating a positive trend in this area.

Additionally, PayPal has successfully reduced key operating expenses as a percentage of its revenue. This combination of increased revenue, improved margins, and lower operational costs directly enhances the company’s free cash flow, which could reach its highest point in history.

Future Insights for PayPal Shareholders

One crucial aspect of PayPal's margin growth is its Braintree business, which offers an unbranded checkout product. This area has been a focal point for the company’s new CEO Alex Chriss since he took over at the end of 2023.

The improvements seen within PayPal stem from a strategic change in priorities, suggesting that further advancements are likely to continue.

PayPal is currently utilizing all of its free cash flow to buy back shares, which will help to reduce the share count over time.

The stock is currently viewed as attractive, trading at a low valuation of about 12 times its free cash flow. Given this affordable valuation coupled with a declining share count, PayPal stock may have the potential for further gains heading into 2025.

PayPal, Stock, Performance