Roku(NASDAQ: ROKU) is a connected-TV platform company; PayPal (NASDAQ: PYPL) is a financial technology (fintech) company; and Etsy(NASDAQ: ETSY) is a digital marketplace for buying and selling handmade products. And if you've held these stocks over the past several years, then you have my sympathy -- all three are down at least 70% from the all-time highs they reached in 2021.
If the S&P 500 index had also dropped over the last few years, then perhaps the returns for Roku, PayPal, and Etsy would be more palatable. But unfortunately, the S&P 500 is up 63% since the beginning of 2021, further underscoring the poor performance of these stocks in that period.
All three have dropped below $100 per share. But the good news for investors is that it appears the tide is already turning for PayPal and Roku. And I believe a rebound is coming for Etsy as well.
1. Roku
Roku stock trades near $84 per share as of this writing, which means it needs to rise about 20% in 2025 to surpass $100. Here's why I believe that's possible.
First, Roku's core business metric -- active accounts -- has continued to climb without fail. At the end of 2021, the company had 60 million active accounts, but it surpassed 90 million in the first week of January, or a 50% increase in just three years. In short, Roku's platform continues to be adopted at a strong pace despite stiff competition.
More hours of video content are being streamed on Roku's platform than ever before, thanks to its expanding user base. This is a strong foundation for growth. The company generates most of its revenue from advertising, so it now needs to better monetize the massive audience it already has.
Advertising dollars go to wherever they're going to generate the best returns. For digital advertising companies, the ability to demonstrate the value of their ad inventory hinges on the usability of their data. Roku launched Roku Data Cloud in January to bring more transparency to what it offers.
Through this new product, it's possible Roku will be able to better showcase how powerful its platform is. This is just one reason to hope that advertisers will flock to the platform in greater numbers in 2025, providing the opportunity for an accelerated growth rate. The stock is already up over 30% in the last six months. If its growth picks up this year, it wouldn't be surprising to see Roku stock back over $100 per share.
2. PayPal
PayPal stock is trading just below $90 per share as of this writing, meaning it only needs an 11% gain in 2025 to clear $100. With recent developments in the business, this seems entirely within reach. Moreover, an 11% gain isn't unrealistic considering PayPal stock was up 39% in 2024.
While many investors are familiar with the consumer-facing side of PayPal's business, the company also has a thriving enterprise-facing business. This includes unbranded checkout services through its Braintree product. In other words, some merchants use PayPal's Braintree to power digital transactions, but the PayPal brand isn't displayed on the consumer side.
Braintree has driven a lot of growth for PayPal in recent years but at the expense of profits. The chart below shows how free cash flow growth trailed revenue growth significantly until recently.
In short, PayPal shook up its leadership in 2023, and the new management team is renegotiating many of Braintree's contracts to support better profit margins. Now, margins are improving, and the company doesn't seem to have lost customers, which suggests that PayPal is far more relevant than a lot of investors give it credit for.
With ongoing profit-margin improvements, PayPal can build on its healthy gains from 2024.
3. Etsy
Of these three stocks, Etsy has the biggest climb to reach $100 per share, considering it trades at just $53. In other words, it needs to jump a whopping 88% from here. That makes Etsy the biggest longshot of the bunch, but in my view, such a rally isn't an entirely outrageous proposition for the stock.
Consider that Etsy trades at just 10 times its free cash flow -- this is really cheap. In fact, Etsy stock could trade at $100 per share right now and still be reasonably valued from a free-cash-flow perspective. But its valuation is depressed because investors have little confidence in the business.
It's hard to blame them. Etsy is struggling to find new buyers -- its active buyers actually dipped slightly in the third quarter of 2024. Moreover, the company's gross merchandise sales are also falling.
But it's not all doom and gloom for Etsy. The company's Q3 revenue continued to rise 4% year over year thanks to an improved take rate. Management is also getting more disciplined, improving revenue per employee and revenue growth relative to what it's spending on product development.
Furthermore, the company has a plan to drive more spending from active buyers with a new loyalty program, among other ideas. In short, buyers are already online spending money elsewhere. If they start spending more on Etsy's platform -- perhaps with gifting -- then the business can grow again.
I believe these investments will start paying off for Etsy in 2025. And when investors realize what's happening, they could quickly move to pick up shares of this undervalued stock, sending the price higher.
Among this trio, Roku is likely the riskiest pick because of its ongoing net losses, while PayPal offers the smallest potential upside because it's quite large already. That leaves Etsy as the best balance between risk and reward.
Should you invest $1,000 in Roku right now?
Before you buy stock in Roku, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Roku wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $874,051!*
Now, it’s worth notingStock Advisor’s total average return is937% — a market-crushing outperformance compared to178%for the S&P 500. Don’t miss out on the latest top 10 list.
Jon Quast has positions in Etsy and Roku. The Motley Fool has positions in and recommends Etsy, PayPal, and Roku. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.
