Thursday is when PayPal is expected to make money.
Wall Street is giving PayPal stock another try. This time, Raymond James analyst John Davis took a cautious approach and downgraded PYPL shares from “outperform” to “market perform.” After the downgrade, PayPal’s stock dropped almost 4% at first, but by the end of Tuesday’s trading session, it had climbed back up by 1%.
The analyst is worried about two different things. First, PayPal’s stock has gone up about 20% so far this year, while the S&P 500 has gone up about 8%. And second, the company will announce its Q4 results later this week. Davis is preparing for a disappointing revenue forecast for 2023. They say that flat or negative growth in branded checkout is to blame.
He thinks that PayPal’s sales will grow between 7% and 8% by 2023, which is less than what Wall Street predicts, which is up to about 9%. He is not by himself. Bernstein’s Harshita Rawat is said to think that PayPal will “modestly” miss revenue expectations for 2023.
The outlook for Davis is not all bad. He thinks that PayPal will beat Q4 expectations on both the top and bottom lines, even though the USD is getting weaker and operating costs are staying the same. But investors will probably be most interested in how much money PayPal will make in 2023, and this is where the analyst thinks PayPal will fall short.
So, PayPal might feel like it’s déjà vu all over again. Competitors, especially Apple Pay, have been putting pressure on the company. Apple Pay has been taking market share and hurting PYPL shares.
“[We] believe the burden of proof has shifted to PYPL and fear the 2023 revenue outlook won’t help,” Davis said.
Deutsche Bank says that PayPal still has a bigger piece of the global e-commerce pie than Apple, with 16% compared to 5%. Analysts at the company say that investors can tell if PayPal is losing market share by looking at the number of payments it makes to merchants.
PayPal’s recently announced layoffs are expected to save the company about $170 million in costs. This should help make up for any drop in sales that the company might see this year. This should lead to growth in earnings in the long run. But it might be too little, too late to stop what Davis thinks will be an even louder “share loss narrative” for PYPL.
One thing that could boost PayPal stock is the $15 billion share buyback that was announced last year. About $4 billion of this buyback is expected to be finished in 2022. On Thursday, PayPal says how much money it made.
