PayPal stock price analysis: beware of a major risk

PayPal stock price has bounced back after bottoming at $55.8 in April this year. It rose to $77.23, its highest level since February 26. It has jumped by over 38% from its lowest level. This article explains why stablecoins are a major threat to PayPal’s business model.

Stablecoins are an existential threat to PayPal

PayPal is a leading fintech company that offers a wide range of financial services to millions of customers worldwide. For example, its wallet service has solutions that simplify how people and companies move money globally. 

The company also offers unbranded solutions that help companies receive payments digitally and in retail locations. It then takes a small commission in all these transactions. 

This business is facing a major threat in the form of stablecoins. A stablecoin is a digital currency that is fully backed by a fiat currency, typically the US dollar or another national currency. 

These stablecoins operate through blockchain networks such as Ethereum, Tron, Polygon, and Arbitrum. In most cases, these transaction costs are often negligible. For example, sending $1 million USDT on Tron can cost less than $10. The transactions are completed in seconds.

PayPal has increased its costs over the years. For example, an international personal transaction has a 5% transaction cost and a maximum of $4.99. It also has a currency conversion fee and additional costs when moving to credit or debit cards. 

In some instances, when a user receives money from PayPal, it holds the cash for 24 hours. Additionally, it may take a few days for the user to receive their cash. 

The same thing happens in its unbranded business, where it takes a small commssion for all transactions it handles. 

Stablecoins address this challenge by ensuring that transactions are fast, easy to process, and inexpensive. As a result, there is a likelihood that its business will be disrupted as these payments gain steam. Indeed, firms like Walmart and Amazon have said that they are exploring the space.

Stablecoins are growing, but PYUSD is not

Data compiled by Visa shows that transactions involving stablecoins are surging this year. There were over $36.1 trillion transactions in the last 12 months, with the adjusted figure being $7.5 trillion. 

The adjusted transaction count jumped to 1.7 billion, while the number of unique addresses has soared to over 271 million. 

As such, one can argue that PayPal’s business has already started being affected by this stablecoin growth since some of these transactions would have flowed in its network. 

Read more: PayPal stock price forecast: why PYPL is crashing, and what next

Worse for the company, its stablecoin, PYUSD, has not gained substantial traction in the industry. Data show that the supply of PYUSD stands at $891 million, two years after its launch. Its supply dropped by 10% in the last 30 days. 

In contrast, the recently launched Ripple USD (RLUSD) stablecoin has crossed the $500 million mark. 

The number of PYUSD stablecoin addresses rose by 5.36% to 97,000, while the number of transactions plunged by 13% to 1.6 million. 

For PayPal to benefit from PYUSD, it needs to attract billions of dollars in cash, which it will then invest and generate an annual return. 

Therefore, while PayPal stock is cheap, there is a likelihood that it will remain under pressure amid these stablecoin risks. PayPal trades at a relatively cheap valuation, with its forward P/E ratio being 15.27, lower than the S&P 500 average of 22.

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