PayPal did not repeat its growth goals, cut its forecasts, and said it was shifting its strategy away from growing its user base in its most recent earnings report.
After it was wiped out in history, it looks a lot cheaper. But the stock is also a lot more pricey now. Buyer’s remorse could happen if you buy the dip.
Since PayPal was split off from eBay in 2015, it had its worst day. Shares of the company fell almost 25% to $132.30 Wednesday. There was a big wipeout, which took $51 billion off of PayPal’s value. It dropped it to $207 billion in value. To put it another way: The drop in value lowered the stock’s P/E to 27.5, which is below its five-year average of 33 times. Over half of the stock’s 52-week high of $310 is now below its current price of $180.
We’ve known for a while that the sale would happen. Tailwinds from a surge in e-commerce during the pandemic looked like they were going away. Before the quarter, PayPal’s management caused a lot of uncertainty by cutting its full-year forecast for 2021 in November. Allegations that the company is going to buy a lot of other companies
(PINS), which the company said it didn’t do, didn’t make people more confident that the company would be able to meet its growth goals without buying other businesses.
PayPal’s fourth-quarter earnings were the point at which it lost all of its credibility. After three months, PayPal dropped its goal of having 750 million active users in 2025. It also cut its revenue growth goal for 2022 by two percentage points. There will be 15 to 20 million new users this year, less than half of the 48.9 million new accounts added in 2021.
PayPal said it should make at least 20% more money in the fourth quarter of 2022 and finish the year in line with or ahead of its medium-term goal. Even so, the company said that 2022 is “off to a slower start than we had hoped, and we are taking a more cautious stance on the year.” Almost 30 percent less money will be made in the first three months of this year than last year.
CEO Dan Schulman said that PayPal would now likely grow its user base by 30 to 40 million people a year, which is about the same as it did before.
“We have a lot of faith in the long run, and this change doesn’t mean that we won’t add tens of millions of new users every quarter.” “It just means that we’re not going to spend money on people who aren’t worth it.”
That might be a good idea, but it’s not the high-growth storey PayPal was telling before. They were predicting annual revenue growth of at least 20% and EPS growth of 22% through 2025.
It’s now time for Wall Street analysts to look at the models they use and cut their expectations. Bloomberg says that at least 27 analysts have cut their price targets since the company’s earnings report. The median price target has dropped from $276 to $202, which is down from $276.
An analyst for MoffettNathanson said that there are a lot of different things going on, and it will take time to work through them. She says that the stock now trades below a 50% premium to the market, which makes it a good time to buy. But there’s also more uncertainty about whether the company will meet its growth goals, such as for the first quarter, which she said had a lot of problems.
They’re changing their business model so that they focus on fewer and more profitable customers. They’re becoming a little more American Express and a little less of a credit card company.”
She said, “Pay.” There will have to be a wait and see how this changes things.
Still, Ellis had a Buy rating for the stock. She cut her target price to $190 from $275. EPS estimates for 2022 and 2023 were also slashed. They went from $5.31 to $4.69 in 2022, and they went from $6.87 to 5.75 in 2023.
BTIG’s Mark Palmer changed the stock’s rating to Neutral from Buy, which means it’s not a good idea to buy it.
“We now think of PYPL as a “show me” storey,” he said in his letter. The company would need to show that it can keep making money at a rate of more than 20% “before we would be comfortable assigning it the kind of premium multiple that would show significant upside from current trading levels,” he said.
An analyst at Jefferies called the stock a Hold and cut his price target to $145, so the stock is now worth less than it was before. It was the same for John Davis, a Raymond James analyst. He cut his rating to a Hold.
Before this quarter’s earnings report, almost all of Wall Street was in favour of PayPal, giving the stock the equivalent of Hold or Buy ratings, FactSet said.
It was Andrew Bauch of SMBC Nikko Securities who had a Sell on the stock before this quarter began. Shares of Big Blue were put on sale last November by Bauch, who said, “Is this the new Big Blue?”
(IBM), a once-powerful tech company that saw its growth slow down.
As Bauch saw it, PayPal wasn’t growing at the same rate as e-commerce as a whole. This meant that the company would have to compete in new areas, like physical point-of-sale payments or making its app into a mobile bank account. Some of that is happening now, but the rise of online checkout options made things more competitive, which coincided with the pandemic coming to an end.
On Wednesday, Bauch told Barron’s that “the space is getting more and more crowded, and PayPal is going to have a hard time keeping or growing its market share.” “In the end, I came to the conclusion that the advice was not realistic.”
It was after this week’s earnings that Bauch lowered his target price to $125 and kept his “Underperform” rating, but he didn’t change his target price.
“I don’t take pride in other people’s suffering,” he said, “but a lot of people are pretty upset and feel burned.”