Coming out of the pandemic, digital payment company PayPal’s (NASDAQ: PYPL) growth was expected to normalize. However, this didn’t sit well with the investors. Further, the drag on its financials from eBay’s (NASDAQ: EBAY) payments migration and macro factors weighed on it.
It’s worth noting that PayPal stock has dropped about 75% from its 52-week high. Further, it has fallen over 58% this year.
Due to the slowdown and near-term challenges, PayPal lowered its FY22 guidance. It now expects its total payment volumes to increase by 13%-15%, down from its previous guidance of 19-22%. Revenue excluding eBay is now expected to increase by 15%-17%, compared to the earlier growth outlook of 19%-21%.
Lower TPV and revenues will likely weigh on its bottom line. PayPal now projects its adjusted earnings to be in the range of $3.81-$3.93 per share, down from $4.60-$4.75. Further, the new EPS guidance compares unfavorably with the prior year, where it posted an adjusted EPS of $4.60.
PayPal now expects 10 million net new active accounts (NNA) in FY22, much lower than its previous forecast of 15 million to 20 million NNAs.
Mizuho Securities analyst Dan Dolev sees this new guidance as conservative, which he believes will “prevent significant disappointment down the road.” Dolev is bullish on PayPal stock. However, he reduced his FY22 EPS estimates and lowered the price target to $120 from $175.
While PayPal’s business faces challenges, the company is focused on driving average revenue per active account (ARPA) by retaining high-quality customers. However, this will lead to higher churn, and impact the growth of its new active accounts.
In response to this, Jefferies analyst Trevor Williams stated that “relying on ARPU growth to make up for lower NNAs is still unproven, and greater visibility into ‘23+ is needed to begin the process of re-rating.”
Williams has a Hold recommendation on PYPL stock. However, most Wall Street analysts are bullish. PayPal stock has a Strong Buy consensus rating on TipRanks, based on 27 Buy, five Hold, and one Sell recommendations. Further, its average price target of $129.06 indicates 65.4% upside potential from current levels.
PayPal’s strong competitive positioning, new offerings, and partnership with Amazon (NASDAQ: AMZN) augur well for growth. Further, the accelerated shift toward the digital economy and the diminishing impact of the eBay transition are positive.
However, uncertainty related to its shift toward higher engagement and ongoing challenges could curb the upside in its stock in the short term.
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