PayPal Holdings stock has received another downgrade, signaling concerns from Wall Street analysts about the company’s turnaround. Over the past couple of years, PayPal has faced various challenges, including macroeconomic factors and competition from companies like Apple that provide buy now, pay later services. As a result, the company’s stock has experienced a 24% decline in the last 12 months.
Analysts Express Worries about PayPal’s Turnaround
BTIG analysts Andrew Harte and Thomas Smith recently downgraded PayPal’s rating from Buy to Neutral in a report released on Friday. This downgrade follows a similar move by Oppenheimer analysts Dominick Gabriele and Jake Kooyman, who lowered their rating from Market Perform to Perform earlier in the week.
According to BTIG, restoring consistent and profitable revenue growth for PayPal will be a lengthy process that extends beyond the fiscal year of 2024. Although PayPal’s unbranded payments business, Braintree, has shown strong growth, it offers lower margins compared to the company’s branded payments business, known as the PayPal button at checkout.
Priorities for New CEO Alex Chriss
BTIG suggests that new Chief Executive Officer Alex Chriss should prioritize boosting margins at Braintree and refreshing the PayPal button, as both initiatives are expected to have a multiyear impact. In the meantime, the analysts propose alternative ways for PayPal to improve earnings, but emphasize that gross profit growth should be the primary focus.
The Oppenheimer team also raises concerns about PayPal’s margins. They note that stabilizing operating margins without continuously cutting expenses will take time, potentially spanning several years.
Financial Performance of PayPal and Other Payment Companies
In premarket trading, PayPal’s stock dipped 0.7% to $58.03. Other payment companies, such as Block and Affirm Holdings, also faced declines of 0.6% and 1.6%, respectively. The broader market, represented by the S&P 500, experienced a slight decline as well.