Receive free Lex updates
We’ll send you a myFT Daily Digest email rounding up the latest Lex news every morning.
PayPal is experiencing a state of decline. Investor sentiment towards the stock has turned negative. In 2021, PayPal shares reached their peak value of over $300 each, resulting in a market capitalization of $362 billion. However, their current trading price is below $60. The company’s valuation, at 11 times forward earnings, is now at a historic low.
Could Temu, a rapidly growing discount e-commerce platform associated with one of China’s top retailers, be the catalyst that brings positivity back to PayPal?
Investor concerns primarily revolve around PayPal’s higher-margin branded unit, which generates revenue every time a customer clicks on the PayPal branded checkout button.
The company faces stiff competition from industry giants like Apple, Google, Affirm, and Afterpay, which is putting pressure on its business. In the past year, PayPal’s payment volumes grew by only 5%, compared to a compound annual growth rate of 26% between 2018-2021.
Temu specializes in selling ultra-low-priced clothing and knick-knacks, predominantly manufactured in China. Since its launch in September 2022, it has gained immense popularity. Currently, Temu, owned by PDD (formerly Pinduoduo), is the most favored shopping app in the US, surpassing Amazon and Walmart. Visits to Temu’s website skyrocketed from 7 million in September 2022 to nearly 300 million in August 2023, according to Similar Web.
PayPal is one of the available checkout options on Temu. Analysts at Mizuho estimate that Temu accounted for around 2% of incoming website traffic to PayPal in August. They believe that as Temu continues to grow in popularity, it could become a substantial revenue source for PayPal.
Of course, there are various obstacles to overcome. Firstly, incoming website traffic may not accurately reflect checkout share. Secondly, Temu’s US customers mostly purchase bargain items, such as 10 pairs of socks for $2 or $5 shower caddies, resulting in slim profit margins for PayPal. Additionally, the sustainability of low-cost retail platforms like Temu, given their high cash burn, remains uncertain.
Therefore, it’s clear that the new CEO, Alex Chriss, must focus on reviving PayPal through internal initiatives rather than relying heavily on Temu and its budget-friendly products.
Our popular newsletter for premium subscribers is published twice weekly. On Wednesday, we delve into a hot topic from a major financial center. On Friday, we analyze the week’s major themes. Sign up here.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
