Better Fintech Stock: PayPal vs. Coinbase Global

PayPal ( PYPL -2.72% ) and Coinbase ( COIN -4.84% ) both saw their stocks hit all-time highs last year. But over the past 12 months, PayPal and Coinbase’s shares declined roughly 60% and 55%, respectively, as investors fretted over their slowing growth and rising expenses.

Inflation, higher interest rates, and other macro headwinds exacerbated that pressure by sparking a sell-off in higher-growth tech stocks. All those challenges seem to make PayPal and Coinbase very unappealing — but could either stock be a potential turnaround play for patient investors?

Image source: Getty Images.

PayPal breaks a key promise

PayPal’s revenue grew 21% to $21.45 billion in 2020. Its active accounts increased 24% to 377 million, its total payment volume (TPV) climbed 31% to $936 billion, and its adjusted earnings per share (EPS) jumped 31%.

During its investor day presentation in February 2021, PayPal boldly declared that it would more than double its annual revenue (to more than $50 billion) and nearly double its number of active accounts (to 750 million) by 2025. Investors were initially excited by those ambitious targets, but PayPal’s growth in both areas slowed in 2021.

Its numbers weren’t that bad — revenue still rose 18% to $25.4 billion in 2021. Its active accounts grew 13% to 426 million, its TPV increased 33% to $1.25 trillion, and its adjusted earnings per share rose 19%. But it expects that slowdown to continue with 15%-17% revenue growth in 2022, and for adjusted EPS to grow just 0%-3% as it ramps up spending again.

PayPal blames the slowdown on supply chain bottlenecks for sellers, inflationary headwinds for consumers, pandemic-related disruptions of travel and event bookings, a lack of new stimulus checks, and slower e-commerce sales in a post-lockdown world. It also could be struggling against formidable competitors like Block‘s Cash App, Shopify Payments, and the bank-backed digital payments platform Zelle.

However, the real shock came this February when PayPal abruptly abandoned its goal of reaching 750 million active accounts by 2025. It hasn’t walked back its revenue target of $50 billion yet, but the recent resignation of its longtime Chief Financial Officer John Rainey — who left to take the same position at Walmart — raises serious doubts about that long-term goal.

Coinbase faces slower growth and higher expenses

Coinbase experienced explosive growth during the pandemic as retail investors spent more time researching and buying cryptocurrencies online. Some investors also used their stimulus checks to buy cryptocurrencies.

As a result, Coinbase’s revenue surged 136% to $1.1 billion in 2020 and jumped 545% to $7.4 billion in 2021. It was unprofitable in 2019, but it generated a profit of $322 million in 2020, which subsequently skyrocketed 1,025% to $3.62 billion in 2021.

However, the market’s interest in cryptocurrencies waned as rising interest rates drove investors away from riskier investments. A lack of new stimulus checks, tighter regulations for cryptocurrencies, and intense competition from rival cryptocurrency exchanges further throttled Coinbase’s growth.

Coinbase’s number of monthly transacting users (MTUs) jumped from 2.8 million in 2020 to 11.4 million in 2021, but it expects to end 2022 with anywhere from 5 million to 15 million MTUs. That forecast is vague, but it clearly implies its growth is peaking as the market matures. That’s why analysts expect its revenue and earnings to decline 12% in 2022.

As Coinbase’s top-line growth decelerates, it plans to more than triple its technology, development, and general and administrative spending in 2022 to expand into new overseas markets like India and Brazil. That expansion is risky, since both countries have been drafting new regulations for cryptocurrencies, and analysts expect the company’s higher expenses to reduce EPS by 95% for the year.

The valuations and verdict

It’s easy to see why both fintech stocks were crushed over the past year, but both stocks are also now historically cheap.

PayPal currently trades at 24 times forward earnings and four times this year’s expected sales. Coinbase trades at nearly 230 times forward earnings due to its upcoming spending spree, but it trades at less than six times this year’s sales.

I wouldn’t rush to buy either of these stocks right now, since they’ll likely remain out of favor in this challenging market. But over the long term, I believe PayPal has a much better shot at recovering than Coinbase, for three simple reasons: It’s better diversified, it has a much larger user base, and its future isn’t completely tethered to the volatile cryptocurrency market.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.