PayPal stock slumps after 2022 guidance disappoints, customer strategy shift
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PayPal Holdings (NASDAQ:PYPL) stock drops 17% in premarket trading after at least three analysts downgrade the stock on the payment tech firm's weak guidance and several others trim their price targets for the stock.
BTIG analyst Mark Palmer cuts PayPal (PYPL) to Neutral from Buy and removes his $270 price target after the company's soft 2022 guidance and shift in customer acquisition strategy raises questions about its near term prospects. "As such, we now view PYPL as a 'show me' story as the company would need to demonstrate that it is still capable of sustaining revenue growth north of 20% on a normalized basis before we would be comfortable assigning it the kind of premium multiple that would indicate significant upside from current trading levels," Palmer wrote in a note to clients.
He's still constructive on the long-term perspective for its payments platform and "super app" that it's been building. But shorter term issues limiting growth include management's shift of increasing user engagement rather than spend on marketing to attract new customers and external factors including inflation hurting consumer spending and supply chain disruptions hurting its small-business merchants.
"We are evolving our customer acquisition and engagement strategy, and we now expect to add 15M to 20M net new customer accounts this year," said John Rainey, PayPal (PYPL)CFO and VP, Global Customer Operations, during the company's earnings call. "In addition, we no longer believe that the 750M medium-term account aspiration we set last year is appropriate."
Raymond James analyst John Davis cuts his rating on the stock to Market Perform from Outperform.
Oddo BHF analyst Martin Marandon-Carlhian reduces his rating to Neutral from Outperform, sets price target at $200.
Evercore ISI analyst David Togut slashes PayPal (PYPL) price target to $245 from $342. "Supply chain management problems, inflationary pressure on spending by low-income customers, and ongoing, steep declines in eBay (NASDAQ:EBAY) volumes created stiff headwinds exiting 4Q/21 that will persist at least through 1H/22, driving 1Q/22 and 2022 guidance well below consensus," he wrote.
Togut maintains his Outperform rating on the stock and it remains his Top Payments Pick for 2022. He sees the stock's ~24x Evercore's revised 2023 EPS estimate as "an attractive valuation given a longer-term EPS growth rate of +20%."
Truist analyst Andrew Jeffrey cuts his price target on PayPal (PYPL) to $130 from $200 and reiterate his Hold rating. "We think the market is still too bullish on long-term organic revenue growth, despite recent underperformance," he said in an note, and advises that investors look to traditional payment networks. He notes that PayPal (PYPL) management's macro comments contrast with bullish outlook expressed by Visa (NYSE:V) and Mastercard (NYSE:MA).
Michael Wiggins De Oliveira, who has Sell rating on the company, discusses PayPal's (PYPL) disappointing guidance.
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"More broadly, she thinks that share gains could slow “by a thousand cuts” thanks to the rise of a number of technologies that separately eat away at opportunities for PayPal. These include the growth of buy-now pay-later (BNPL) services, the ability to auto-fill credit-card information on some web browsers, and the threat of Apple Pay as ever more commerce shifts online. “It is an understatement to say that the payments landscape is rapidly evolving with many powerful trends emerging,” Rawat said in her note to clients. “While PayPal is actively investing and evolving, it simply has more turf to defend versus peers in our view.”
