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PayPal: is a Recovery in Store After a Steep Pullback?
Stock Analysis & Ideas

PayPal: is a Recovery in Store After a Steep Pullback?

Shares of fintech giant PayPal (NASDAQ: PYPL) have declined nearly 58% this year amid a broader sell-off of high-growth names due to macro uncertainty.

Investors are also worried about the effect of geopolitical tensions triggered by the Ukraine-Russia conflict, eBay’s (EBAY) transition from PayPal to its own payment system, the impact of rising inflation on consumer spending, and a general slowdown in ecommerce transactions following the reopening of the economy.  

Financial Snapshot

Last month, PayPal reported mixed Q1’22 results, with adjusted EPS in-line with the Street’s estimates and revenue exceeding expectations. However, the company lowered its full-year revenue and EPS outlook and issued a weak guidance for Q2 due to macro challenges.

PayPal’s Q1 revenue increased 7.5% to $6.48 billion, with TPV (Total Payment Volume) rising 13% to $323 billion. The company ended the quarter with 429 million active accounts, up 9% year-over-year. However, adjusted EPS declined 28% to $0.88, reflecting the impact of higher expenses, lower eBay transactions, and suspension of transactional services in Russia.   

PayPal expects its 2022 revenue to grow by 11% – 13%, compared to the previous outlook range of 15% -17%. Additionally, TPV growth is now estimated to be between 13% – 15%, down from the previous outlook of 19% – 22% growth. Further, 2022 adjusted EPS is expected in the range of $3.81 – $3.93, compared to the previous guidance of $4.60 – $4.75.  

Wall Street’s Take

Oppenheimer analyst Dominick Gabriele lowered his price target on PayPal to $118 from $173 to reflect lower EPS estimates. Though cautious, Gabriele retained a Buy rating as he feels that the worst is likely in the rear view mirror, and the stock could offer “significant upside potential for the brave, if management executes/meets expectations.”

Recently, CFRA analyst David Holt upgraded PayPal Holdings to Buy from Hold, as he feels that “negative sentiment could be bottoming.”

Overall, PayPal scores a Strong Buy consensus rating based on 27 Buys, five Holds and one Sell. The average PayPal price target of $129.06 implies 61.83% upside potential from levels seen before market open on Wednesday.  

Conclusion

While the impact of near-term macro headwinds, rising competition and a potential slowdown in consumer spending on PayPal cannot be ignored, the long-term growth story looks intact. This can be based on new offerings, the prospects for Venmo’s peer-to-peer payment platform, and the partnership with Amazon (AMZN). The company expects its TPV to cross $1.4 trillion this year.

PayPal has a massive network and the ability to capture further opportunities in the global fintech space with growing adoption of digital payments. As reflected in the Street’s consensus rating, the majority of analysts covering the stock continue to be bullish on PayPal.  

Further, TipRanks data shows that financial blogger opinions are 84% Bullish on PayPal, compared to a sector average of 66%.

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