I maintain a Buy investment rating on PayPal Holdings’ (Nasdaq:PYPL) stocks.
I reviewed PayPal’s Q2 2022 financial performance and assessed PYPL’s share price recovery potential with my previous Updated on August 12, 2022 to the company. In this latest post, N Focusing on PayPal’s outlook for the coming year.
I continue to give PayPal a buy rating as we see PYPL’s stock performing well in 2023. Investors should report above-expectations earnings that are likely to achieve PYPL’s potential and other key catalysts such as market share gains.
What do analysts believe about PayPal?
Analysts believe that PayPal is not as attractive to investors as it was a year ago, and their beliefs about PYPL are tied into the stock’s investment ratings and price targets.
PYPL’s consensus sell-side analyst rating has declined from 4.36 (1 equals a strong sell, and 5 represents a strong buy) at the end of the previous year. 4.11 Now.
During the same period, the average analyst target price for PayPal was reduced by -62% from $273.50 to $104.50. S&P Capital IQ Information.
In the next section, I touch on potential catalysts that could change Wall Street’s view of PayPal in a positive way.
What should PayPal catalysts look for?
I think PayPal has two key catalysts to watch out for in 2023.
PYPL’s first catalyst was stronger-than-expected market share gains.
Deutsche Bank (DB) “Is PYPL losing market share?” published a research paper (not publicly available) entitled On November 16, 2022, Investor highlighted that “attention has turned to the question of whether PYPL’s core business is maintaining or losing market share.” It’s fair to assume that this is one of PayPal’s main investor concerns, leading sell-side analysts to cut their target prices and investment ratings for the stock.
at UBS’ (UPS) 50th Annual Global TMT Conference On December 7, 2022, PayPal addressed the issue of market share by revealing that the company “still held (market) share or grew slightly” through 2022 based on its TPV (Total Payment Volume) data and industry research. If PayPal can prove to the market that it can maintain market share going forward, this will certainly help boost its stock price.
A second catalyst for PayPal is the faster-than-expected increase in BNPL’s adoption rate (buy now, pay later).
PYPL occupies a leading position in BNPL, a growing segment of the payments market. An analyst from UPS Citing the latest consumer survey conducted by the bank on December 7, 2022 UPS The TMT conference noted that “36% of Shop Now and Pay Later users chose PayPal’s Pay in Four as the most frequently used BNPL product.” Therefore, if BNPL’s penetration rate grows at a faster pace, it will be a tailwind for PYPL.
In the next section I touch on the key metrics that support the realization of these two key catalysts for PayPal.
PYPL Stock Key Metrics
An analysis of some key metrics suggests that the two catalysts (highlighted in the previous section) have a high probability of action in the near future.
On December 8, 2022 Barclays (PCS) published a report (not publicly available) titled “Is PYPL Losing Share? Our Data Suggest: Not What You Think.” In this report, Barclays According to DigitalCommerce 360 data, “PayPal has more than double the online acceptance of Apple Pay.” Its own credit card (Barclaycard) data shows that “PYPL’s share of overall Barclays e-commerce volumes and transactions continues to increase,” BCS said in its report.
Data obtained from Barclays The report is compliant PYPL Management’s comments about its market share gains this year are the latest so far UPS Conference. As such, concerns about PayPal’s potential market share loss may be high.
Disclosed on PayPal separately UBS’ At the 50th Annual Global TMT Conference in early December, more than a million people used its BNPL product on Black Friday this year, while its BNPL volume grew +110% year-on-year during the recent Cyber 5 weekend. While PYPL’s BNPL business has performed reasonably well, industry data suggests that the growth runway for BNPL is still long.
November 16, 2022 research report (not publicly available) published by JP Morgan (JPM) titled “BNPL JPM Survey and Takeaways – Oct’ 22” in a survey of “2,110 US adults” found that “35% of those surveyed had used BNPL within the past six months”. The JPM report also revealed that “BNPL is the preferred payment method only for a low single digit percentage of respondents” as “Gen Z/Millennial and slightly more affluent” are the main BNPL users. In other words, BNPL has a lot of room to grow, BNPL is generally underutilized as much as one would expect, and BNPL has yet to gain the support of the elderly and other consumer segments.
What is the forecast for 2023?
The market’s consensus 2023 financial projections may be too conservative.
Gabriel Rabinowicz, PYPL’s Executive Chief Executive Officer, met some BofA Securities’ (BAC) institutional clients on December 9, 2022, according to the broker’s December 12, 2022 research report (not publicly available). The company’s CFO shared with investors that PayPal is very confident of achieving non-GAAP operating margin expansion of 100+bps and at least 15% EPS growth for 2023, even with the “e-commerce industry slowing down next year.”
According to S&P Capital IQs Consensus data sees PayPal expanding its EBIT margin by +1.0 percentage points from 21.0% in fiscal 2022 to 22.0% in fiscal 2023. 2022 to $4.77 for FY 2023.
Therefore, there is a good chance that PayPal will meet or beat analysts’ expectations next year based on a comparison of management’s expectations and consensus numbers.
Buy, sell or hold PYPL stock?
In my opinion, PYPL stock remains a buy. Expectations for PayPal aren’t high, and that leaves room for the company to surprise with its 2023 results.