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Bear of the Day: PayPal (PYPL)

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Founded back in 1998, PayPal (PYPL - Free Report) has grown into one of the largest online payment solutions providers thanks to its strong product portfolio and two-sided platform that enables it to offer smooth and secure transaction facility to both customers and merchants.

Q4 Earnings Spook Investors

Last month, PayPal reported fourth-quarter fiscal 2021 results that ended up having a ripple effect across the entire payments industry.

The company’s headline numbers were actually pretty solid. Revenue was up 14% to $6.9 billion as total payments volume (TPV) grew 23% year-over-year to $339.5 billion, and non-GAAP earnings came to $1.11 per share, missing the consensus estimate by a penny.

The main problem, however, was PayPal’s guidance. The tech firm only expects revenue growth between 15% and 17% for 2022 compared to analysts’ expectations of about 18%, with adjusted EPS between flat and up 3%. Additionally, PayPal anticipates it will add 15 million to 20 million new accounts this year, which was far below the 53 million expected.

PayPal also said that it’s abandoning its long-term goal to add 750 million new monthly active users by 2025, and instead focus on creating more revenue from its existing user base, something many interpreted as the company foreseeing a growth slowdown.

PYPL shed about 25% to a new 52-week low after releasing its results, and fellow fintech stocks like Block (SQ - Free Report) , SoFi Technologies (SOFI - Free Report) , and Shopify (SHOP - Free Report) all tumbled as well.

Bottom Line

PYPL is a Zacks Rank #5 (Strong Sell).

16 analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has dropped $0.47 to $4.69 per share. PYPL’s earnings are expected to grow only 2% for fiscal 2022, with revenue increasing 15.8% for the same period; both Zacks’ top and bottom-line estimates fall in-line with PayPal’s outlook.

Shares of PayPal have plummeted over 65% over the last six months as the stock got caught up in the broad-based tech and growth stock sell-off.

PayPal Holdings, Inc. Price and EPS Surprise








Adding to PYPL’s woes is bearishness from some on Wall Street.

Bank of America analyst Jason Kupferberg recently downgraded the fintech stock from a buy to a hold and cut his price target to $107 from $175, citing short-term headwinds. He sees management’s goal to increase revenue-per-user, rather than new customer growth, getting complicated due to the Russia-Ukraine conflict; almost a third of PayPal’s revenue was earned in Europe last year.

Kupferberg also believes 2022 will be a “transition year,” and told clients in a note he’s unclear how fast revenue could accelerate in the second half of the year, and warned shares could trade sideways as a result.

This warning, coupled with a tough trading environment for high-flying growth stocks, have led investors to reevaluate PYPL. After its recent slide, shares now trade at a 12-month forward earnings multiple of 21.4X.

While PYPL’s growth journey is looking bumpy right now, the stock’s post-earnings plunge could end up being a sold buying opportunity for long-term investors and those looking to add exposure to the digital payments space.

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