William Blair downgrades PayPal on lack of payment volume growth

William Blair downgraded PayPal (PYPL) to Market Perform from Outperform without a price target. The analyst sees potential upside to 2024 and 2025 earnings estimates, saying PayPal continues reducing non-transaction expenses and buys back stock with its “robust” free cash flow. However, the firm does not anticipate the stock’s multiple will appreciably rise in the absence of accelerating payment volume growth or expanding transaction dollar margin. Blair is “increasingly convinced” that PayPal will have to reverse the decline in what is effectively its gross margin, and most important unit economic key performance indicator, for the stock to re-rate higher. It does not see this as a high probability outcome in 2024 or 2025. In addition, Apple’s (AAPL) ongoing consumer-facing fintech investments, primarily Apple Pay, “create intractable competitive challenges” for PayPal, adds the firm.