PayPal (PYPL) announced Intuit executive Alex Chriss will be the company's new CEO beginning September 27th. Argus Research Director of Financial Services Research Steve Biggar tells Yahoo Finance Live why he thinks Chriss "is a good fit" for PayPal and some of the "key focuses" for the company's future.

PayPal has "a lot of competition in the payment space that they have to watch out for." The company has to "continue to be very innovative… They’ve had some struggle with margin expansion here as they focus more on, kind of, the back business than the payment button business, which is a little bit more lucrative for them. So all of those are key focuses" Biggar explains.

Video Transcript

AKIKO FUJITA: Well, PayPal's finally announcing its plans to replace CEO Dan Schulman. The company naming Intuit executive Alex Chriss as its next chief executive and will take over on September 27. Joining us now is Steve Biggar, Argus Research Director of Financial Services Research. Good to talk to you today. Give me your take here with Alex Chriss now being tapped to run the company. What does it mean for PayPal's turnaround?

STEPHEN BIGGAR: Yes. Hi, Akiko. I think this is a good fit. The more I read about Alex Chriss's background, the more I like. I think he's-- you know, the stint at Intuit and, you know, integrating acquisitions and the focus on small businesses, and, of course, they do have some payment capabilities as well there, all lines up to be a pretty good fit. So I think the move today that, you know, roughly 3% increase in the share price today is appropriate. I think it's also a bit of a sigh of relief that Dan Schulman, his replacement has been found.

The company has been through some executive shake-ups here. They had a CFO, of course, that left for Walmart. They replaced him. He was at a very short stint and then out for medical. And the investor relations director has been filling in there. So, you know, it's been a bit of a void here. And I also like the fact that Schulman will be around through May of next year to make for an easy transition and hopefully, a faster learning curve.

SEANA SMITH: Steve, what do you think the top priority needs to be for Alex Chriss? Because he's taking over at a time, which is pretty challenging. We have a softening consumer. We also know that PayPal has already been undergoing some cost-cutting measures. But what do you think needs to be at the top of the list as we talk about getting PayPal and strategizing that company here for the future?

STEPHEN BIGGAR: Yeah. Sure, Seana. I think the focus is what you're mentioning there. You know, they have a lot of competition in the payment space that they have to watch out for. They have to be continued to be very innovative. And PayPal has been on a number of fronts. They've had some struggle with margin expansion here as they focus more on the back business and then the payment button business, which is a little bit more lucrative for them. So all of those are key focuses.

They did outright state that the cost-cutting was coming in advance of a new CEO. So we would not have to come in with, what I wouldn't call a bloated cost structure here, but just a little bit more efficient. One could say maybe they hired a little bit during the pandemic when everything was surging in terms of digital payments. So I think all of those things are going to have to be a focus for the new CEO here.

AKIKO FUJITA: Steve, who do you think poses the biggest competitive threat to PayPal right now? You know, Apple Pay, that's one that's been raised a lot. But there's certainly a lot of other competitors. This is a space that is much more crowded or has become much throughout the years.

STEPHEN BIGGAR: Absolutely. Absolutely. Yeah. You know, the big players, you still have Square. Of course, they focus more on the small and micro merchant business. You've got just outright Visa and Mastercard. You got bank cards. You've got Apple Pay. You've got Stripe. You've got all the affiliations with buy-now-pay-laters, which are taking share PayPal has their own. So they're being competitive in that space.

It is a crowded and competitive landscape. But the thing to remember about PayPal is that they're unique, in that you can both be paid and pay and be paid on the platform. You can transfer money with Venmo. You can use cryptocurrencies now. Of course, they had some innovation there last week. So I think they have the name brand. They're certainly the platform that is most prevalent, has a checkout button as well, the number one there. So they have a lot of key competitive advantages, I think, that certainly make them, you know, very competitive in the space and able to grow, not just in the payment space because of their strategy, but the tailwind of the secular-- the tailwind that we have in terms of more payments being migrated to digital and away from cash and checks and the like.

AKIKO FUJITA: When you think about PayPal stock, this is one that has seen steep declines. We were saying in 2021 that peak was $360 in terms of the valuation of the or market cap of the company, now at roughly $70 billion. You talked about potential upsides here. What do you think is going to be the big catalyst?

STEPHEN BIGGAR: Yes. Well, of course, 2020 and 2021 were big years in the digital payment space. You had an acceleration of that digital migration during the pandemic. And I think obviously, that pulled forward a lot of growth in those years. And now, they're paying for it a bit with more sluggish growth this year and next, although I will point out that earnings this year should exceed the prior peak of 2021.

So in terms of valuation, I think you're looking at, you know, a stock that has a kind of a mid-teens growth, is a fairly durable number to expect from them. I apply about a little over 1 peg or 1.1 peg, so about an 18 PE, And come up with an $88 target price, which is-- indicates the shares are about 30% to 35% undervalued at this point.

So I think the catalyst here, a few things that have held the stock back, including the CEO replacement, the need for a permanent CFO, still at this point, and just start executing on that get the lower cost structure in place and start executing on the earnings growth trajectory that they had previous to the pandemic.

AKIKO FUJITA: Steve Biggar, Argus Research Director of Financial Services Research, good talk-- good to talk to you today. Appreciate the time.

STEPHEN BIGGAR: Thank you.