Stocks of Paypal Have Reached an Unglamorous Milestone

In a notable departure from the past, a growing number of Wall Street analysts are expressing skepticism about PayPal Holdings Inc., marking a significant shift in sentiment for the fintech giant. Mizuho's Dan Dolev recently downgraded PayPal's stock from a buy to a neutral rating, contributing to a total of 23 analysts who now hold equivalent hold ratings. When factoring in the lone sell-equivalent rating among the 47 analysts covering PayPal, the once-dominant bullish sentiment no longer constitutes the majority, as per the latest monthly data.

‍

Reflecting on PayPal's trajectory, it is evident that the company, once a darling of Wall Street with nearly 90% bullish ratings in early 2020, has witnessed a precipitous decline. The stock currently trades at an 80% discount from its all-time high, reflecting concerns about heightened competition and dwindling margins.

‍

Dolev's downgrade is rooted in concerns about PayPal's apparent struggle to maintain market share against Apple Pay. According to him, the data indicates that losing ground to Apple Pay is becoming an increasingly formidable challenge. Furthermore, a looming demographic issue is emerging, with younger segments of the U.S. population showing a preference for newer payment methods like Apple Pay, auto-fill, and buy-now-pay-later (BNPL) services.

‍

While PayPal has historically excelled in desktop checkout experiences, Dolev points out that the company lags behind on mobile platforms, where a growing number of consumers are conducting transactions. In contrast, Apple Pay holds a more advantageous position in the mobile arena compared to desktop. The repercussions of this mobile-centric shift are reflected in PayPal's stock, which experienced a 1.4% decline shortly after the announcement of the downgrade.

‍

Adding to the challenges, PayPal's ownership of Venmo, once considered the crown jewel of peer-to-peer payments in the U.S., is facing competitive pressures from rivals like Zelle. Dolev highlights concerns about PayPal's struggle to enhance Venmo's monetization profile, noting that Venmo's core customer base likely relies on traditional banks for financial services. In contrast, competitors like Block Inc.'s Cash App product cater to customers actively seeking such services.

‍

Dolev also draws attention to the margin challenges confronting PayPal. The company is grappling with an increasing contribution from its lower-margin unbranded checkout product to the overall business, a trend that Dolev anticipates could continue to exert pressure on gross profit.

‍

In conclusion, the once-unassailable optimism surrounding PayPal on Wall Street has given way to a more skeptical outlook. The company faces a confluence of challenges, from heightened competition with Apple Pay to demographic shifts favoring alternative payment methods, as well as difficulties in maximizing the potential of its key assets like Venmo. As analysts reassess their positions, it remains to be seen how PayPal will navigate these challenges and regain the favor it once enjoyed among investors.