PayPal shared its drop in stock by 4.35% after Bernstein analysts downgraded the stock from the equivalent of a buy to hold and cut the price target to $220 from $260. PayPal shares are down almost 13% for the year while the Nasdaq Composite is up by 25%.
The analysts wrote that ‘PayPal’s positioning as a leading digital wallet in an increasingly digital world is hard not to acknowledge (one of the reasons we upgraded the stock 2yrs ago). That said, we believe change is accelerating, and PayPal now risks getting disrupted vs. being a disruptor.’
PayPal currently has 286 million active users. As of the third quarter of 2020, PayPal recorded a 70 million year-on-year growth, and its number of active users is always growing. PayPal is present in a number of diverse industries including eCommerce, the technology & entertainment industry, gaming, and others. It is also heavily present in the iGaming industry, PayPal being one of the most popular e-wallets for depositing and withdrawing funds at PayPal online casinos.
Bernstein analysts are concerned about the rising concentration of e-commerce around big platforms like Shopify and Amazon. These account for 32% of the U.S. e-commerce market. The former is a strong competitor for PayPal, especially when it comes to small and medium-sized businesses. Amazon is also set to accept PayPal’s Venmo as an alternative payment in 2022.
The analysts are also concerned that PayPal is ‘under siege by a thousand cuts’ from other payment solutions ranging from Apple Pay and Square to buy now, pay later options from Affirm and Klarna, which are growing between 50% and 100% annually, the analysts wrote.
‘We believe Square’s pending acquisition of Afterpay is game changing and accelerates its efforts towards becoming a dominant payments ecosystem in the U.S.,’ the analysts wrote.
As a concluding note, the analysts wrote that ‘while PayPal is actively investing and evolving, it simply has more turf to defend vs. peers in our view’.