PayPal (PYPL) stock more than doubled in 2020 amid an accelerated shift towards digital platforms.
However, 2021 hasn’t been a great year for its investors. Shares of this e-payment processing company are down about 11.8% on a year-to-date basis, underperforming the Nasdaq composite index by a considerable margin on a year-to-date basis.
What Went Wrong?
A confluence of factors, including tough year-over-year comparisons, normalization in demand amid economic reopenings, softer back-to-school spending, and eBay’s (EBAY) payments transition, weighed on PayPal’s financials.
It posted revenues of $6.18 billion in Q3, missing the Street’s estimate of $6.23 billion. Moreover, it expects to report revenues in the range of $6.85 billion to $6.95 billion in Q4, much lower than Wall Street’s estimate of $7.24 billion. Also, its Q4 adjusted EPS guidance of $1.12 falls short of the Street’s estimate of $1.27.
In response to its lower-than-expected guidance, PayPal CFO John Rainey said that Q4 started on a solid note, “but growth rate still remains slightly below” the company’s expectations. Rainey added that supply chain concerns and a tight labor market could hurt holiday sales, which has led the company to “adopt a more cautious stance.”
Now What?
Let’s admit the near-term headwinds will likely take a toll on PayPal’s financials, which is why several analysts lowered their price targets on its stock.
However, PayPal’s dominant position in the digital payments category, its partnership with Amazon (AMZN), expansion of merchant network, including Walmart (WMT), and growing footprint in the high-growth BNPL (buy now pay later) segment augur well for growth.
Further, most of PayPal’s challenges are transitory. Citing near-term challenges, PayPal CEO Dan Schulman termed headwinds as “temporal” and expects the company’s revenues to “accelerate throughout next year.”
Wall Street’s Take
While PayPal stock is under pressure, Wall Street maintains a bullish outlook. On TipRanks, PayPal has received 22 Buys, four Holds, and one Sell for a Strong Buy consensus rating. Moreover, PayPal scores a 9 out of 10 from TipRanks’ Smart Score rating system, implying it will likely outperform the market.
The average PayPal price target of $280.48 implies 37.1% upside potential to current levels.
Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.
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