Shares of fintech giant PayPal (NASDAQ:PYPL) have declined more than 14% over the past month and are down about 11% year-to-date. The company’s second-quarter results, announced earlier this month, came slightly ahead of estimates but failed to address investors’ concerns about margins and the impact of growing competition in the payments space. Nevertheless, several analysts remain bullish on the stock, especially after the announcement of a new CEO, and expect a solid upside potential.
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Wall Street Expects PYPL Stock to Bounce Back
PayPal’s second-quarter revenue grew 7% year-over-year to $7.3 billion, while adjusted EPS increased nearly 25% to $1.16. The company’s Q2 2023 results and third-quarter outlook came ahead of expectations.
While the company’s Q2 2023 adjusted operating margin increased 228 basis points year-over-year to 21.4%, it fell short of analysts’ estimate of 22% and the first-quarter operation margin of 22.7%. PayPal’s margins have been under pressure due to the rapid growth of lower-margin businesses like Braintree (part of the company’s unbranded business) compared to the company’s branded offering.
Also, the company is facing increasing competition from several tech giants that are seeking growth in the fintech space, including Apple’s (NASDAQ:AAPL) Apple Pay mobile payment service. It is worth noting that PayPal ended the second quarter with 431 million active accounts, which marked a decline compared to 433 million as of Q1-end.
While some analysts lowered their price target following the Q2 print, Truist Financial analyst Andrew Jeffrey raised the price target for PYPL to $85 from $80 and reiterated a Buy rating on August 3. Jeffrey believes that the worst of the branded share loss is behind the company, given management’s commentary about Q2 2023 branded volume rising 6.5% and accelerating to 8% in July, with additional momentum expected in the second half of the year.
Like Jeffrey, Goldman Sachs analyst Michael Ng is also bullish on PYPL and reiterated a Buy rating with a price target of $89 on August 18. Reacting to the news of the appointment of Alex Chriss, a senior executive at Intuit (NASDAQ:INTU), as the new CEO of PayPal succeeding Daniel Schulman, the analyst said that it removes a “key overhang” on PYPL stock. He expects the company to benefit from Chriss’ experience in product development, small and medium business (SMB) solutions, and payments.
Chriss most recently served as the executive vice president and general manager of Intuit’s Small Business and Self-Employed Group, which accounts for over 50% of Intuit’s revenue.
The price targets of Jeffrey and Ng indicate upside potential of 34% and 40.3%, respectively, in PYPL stock from current levels.
Is PYPL a Buy, Sell, or Hold?
With 20 Buys and 10 Holds, Wall Street has a Moderate Buy consensus rating on PayPal. The average price target of $87.38 implies about 38% upside potential.
Conclusion
PayPal stock is down year-to-date due to concerns about the company’s margins and growing rivalry. That said, several analysts remain optimistic about the road ahead, especially after the appointment of the company’s new CEO. During the Q2 2023 earnings call, management assured investors that the company is in the process of launching high-margin, value-added services, expanding internationally, and making significant progress with in-person payments.
