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PayPal Stock: Do Recent Layoffs Spell Trouble?
Stock Analysis & Ideas

PayPal Stock: Do Recent Layoffs Spell Trouble?

Shares of PayPal (PYPL) suffered from yet another big down day on Wednesday, bringing shares down just north of their 52-week low of $92.25 per share.

All PayPal stock does these days is amplify the big down days suffered by the broader Nasdaq 100 exchange. For investors who got in during the pandemic era, it’s been frustrating to hang on amid the payments player’s painful pummeling.

Despite surrendering its pandemic gains, I still think it’s too soon to go bottom-fishing in the stock. The company faces increased competition, and macro trends can only work against it.

Adding greater uncertainty into the equation, we learned just over a week ago that PayPal laid off some employees from the R&D team focused on emerging technologies. Such emerging technologies worked on include crypto, blockchain, and even quantum computing.

Such layoffs to R&D are bad news in my books. Arguably, a greater focus on such next-generation innovations is what a company that stands to be disrupted needs. As such, it’s no mystery as to why the market may perceive recent layoffs as ominous.

Despite the damage that’s already been done to the stock, I remain neutral on PYPL stock.

PayPal Stock: Questions Linger

PayPal stock trades at 4.8 times sales, and around 29.5 times trailing earnings. That’s not expensive for a well-established firm in the payments space.

Unfortunately, I’m still very concerned with PayPal’s ability to hold its own as competitive pressures close in.

It’s not just up-and-comers like SoFi (SOFI), a millennial-friendly fintech going down the neobank route that PayPal needs to keep tabs on. It’s big tech firms like Apple (AAPL) that could do a lot of damage to payment kingpins like PayPal, as it explores payments initiatives.

PayPal stock is pretty cheap. Is it cheap, given the fintech sector’s disruptive turn? The last thing investors want is to be caught offside in a firm at risk of being knocked off the podium by rivals.

Though PayPal management still strives to produce 20% in annual sales growth, it will need to innovate and make very important decisions moving forward if it’s to stay a dominant force in payments.

Blockchain and crypto are likely areas that could hold the keys to the future of payments. Recent layoffs over at PayPal do not enforce confidence, in my view.

Headwinds Already Priced In?

PayPal has taken the brunt of the damage amid the fintech flop. Though CEO Daniel Schulman is a very smart man, he has important decisions to make, as the company runs into a potential recession-induced slowdown in transactions.

There are considerable risks up ahead for a firm like PayPal. With such a depressed multiple, though, I would look for a potential ricochet if Schulman can unveil something for investors to get excited about.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, PYPL stock comes in as a Moderate Buy. Out of 40 analyst ratings, there are 29 Buy recommendations, 10 Hold recommendations, and one Sell recommendation.

The average PayPal price target is $172.22, implying 81.5% upside potential. Analyst price targets range from a low of $105 per share to a high of $245 per share.

Bottom Line on PayPal Stock

I think PayPal needs to pivot. I think it’s more than capable under the leadership of Schulman. Further, I don’t believe the firm’s ability to innovate its way out of the rut is fully factored in.

Nobody knows when PayPal will shed light on where it sees the puck heading next. Regardless, I find the price of admission in PYPL stock to be incredibly low such that any modestly exciting news is likely to be a significant needle-mover.

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