PayPal's stock could be near its ultimate bottom, analyst says
By Emily Bary
Adyen just revealed a 'difficult truth' about commoditization in payments, but with 'a bit of twisted logic,' the revelation could be bullish for PayPal, according to Truist
PayPal Holdings Inc.'s shares had already slid some 80% from their peak closing high when Adyen NV delivered a grim signal for the payments industry last week, but one analyst thinks Adyen's discussion of a more commoditized payments landscape could actually be good news for PayPal's stock.
Dutch payment processor Adyen on Thursday delivered an earnings report that Truist Securities analyst Andrew Jeffrey said revealed a "difficult truth" for the broader payments landscape, that "there is little or no tech differentiation among e-commerce providers, and intensifying competition is creating problems for even the best digital tech stacks."
Could that discussion actually offer some relief for PayPal's beaten-down shares (PYPL)? With "a bit of twisted logic," perhaps it is a bullish signal, according to Jeffrey.
"[W]e submit this is a realization at which PayPal arrived earlier than others, and has been focused on investing against," he wrote. "While Adyen, for example, spends heavily to build organic omnicommerce share, we think PayPal can focus on better [e-commerce] monetization" and can add omnichannel commerce capabilities through mergers and acquisitions.
See also: Is Adyen's pain PayPal's gain?
"Combined with compelling valuation, what the market views as broadly disappointing could put in the ultimate PYPL bottom," he continued.
Jeffrey said he sees "unappreciated optionality at PayPal" bolstered by the company's roughly $6 billion in net cash and its potential to deliver almost $20 billion in cumulative free cash flow through 2025. While his model assumed the company will continue with buybacks, Jeffrey said he thinks PayPal's next chief executive will consider some M&A.
"We have long held that PayPal needs to acquire a card-present processor to boost its Venmo and in-store monetization initiatives," Jeffrey wrote. "This may be even more relevant today as Adyen and others, like Shift4, invest to build omnichannel franchises."
In his view "prudent and thoughtful M&A" could help drive "a material positive re-rating" in PayPal shares alongside some of the other factors Jeffrey highlighted.
He noted that shares of Block Inc. (SQ), the parent company of Square and the Cash App, have also been under pressure lately, and he said that "patient investors" might want to revisit this name as well.
"We think Block is starving its Square ecosystem of investment as the co focuses on profitability," Jeffrey said, though he thinks this is a mistake. While Block's stock could tread water until growth reaccelerates in the Square business during the first half of 2024, he doesn't think the business is losing structural market share.
"The forgotten pair deserves another look," Jeffrey said of Block and PayPal shares, both of which he rated a buy.
-Emily Bary
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
08-22-23 0849ET
Copyright (c) 2023 Dow Jones & Company, Inc.-
5 Undervalued Stocks to Buy to Play a Little Defense
-
Markets Brief: AI Leaders Excel In Earnings Season So Far
-
What History Tells Us About the Fed’s Next Move
-
What’s Happening In the Markets This Week
-
Alphabet’s New Dividend: What Investors Need to Know
-
Going Into Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?
-
Going Into Earnings, Is Eli Lilly Stock a Buy, a Sell, or Fairly Valued?
-
What’s the Difference Between the CPI and PCE Indexes?
-
After Earnings, Is Tesla Stock a Buy, a Sell, or Fairly Valued?
-
After Earnings, Is GE Aerospace Stock a Buy, a Sell, or Fairly Valued?
-
3 Good Stocks to Buy with Your Tax Refund in 2024 (Or with Any Extra Money)
-
SoFi Earnings: Revenue Growth Slows on Lower Loan Growth and Higher Credit Costs
-
Tesla: Full Self-Driving Approval In China Supports Our View for Deliveries Growth In 2024
-
Philips Earnings: Firm Reaches $1.1 Billion Settlement Agreement
-
AbbVie Earnings: Next-Generation Immunology Drugs Help Offset Humira Biosimilar Pressure
-
Exxon Earnings: Ignore Earnings Shortfall as Long-Term Growth and Improvement on Track