• PayPal benefits from the online shopping trend during the corona pandemic
• Boom abates: payment service is increasingly confronted with problems – PayPal share weak
• Deutsche Bank analyst: PayPal is now “on the road to recovery”
While the payment service provider PayPal was still able to benefit from the online shopping trend during the height of the corona pandemic, the company has recently been confronted with increasing problems. The online shopping boom has meanwhile abated again, and many people are increasingly shopping locally again. Furthermore, consumer sentiment is easing in the face of high inflation and fears of a recession. These factors are also weighing on PayPal shares, but an analyst at Deutsche Bank was recently a little more confident about the payment service’s shares.
Second quarter results
In the first quarter of 2022, PayPal already reported a drop in profits and the company lowered its annual outlook – and in the second quarter of this year PayPal also suffered a significant drop in profits, despite revenue growth of 9 percent to $6.8 billion. Operating profit fell 32 percent to $764 million compared to the prior-year quarter, while net income slipped into the red at $341 million.
Entry by activist investor
However, investors were optimistic after the disappointing numbers that activist investor Elliott, who is known for meddling in management in order to achieve high returns, has invested around $2 billion in the payment service, making it one of the largest owned by the company’s largest shareholders.
And the influence of the hedge fund also seemed to have an immediate effect, as PayPal announced austerity measures, increased profit targets for the full year, announced a new chief financial officer and announced a new billion-dollar share buyback program, according to the German Press Agency.
performance of the stock
The value of PayPal shares has roughly halved this year on the US tech exchange NASDAQ. Currently, a PayPal share costs $95.03 (closing date: 09/19/2022), while the share was still trading at around $195 at the beginning of the year. If you look at the performance of PayPal shares over the past twelve months, the shares in the payment service have even fallen by around 65 percent.
Deutsche Bank optimistic
As MarketWatch reports, however, according to Deutsche Bank analyst Bryan Keene, PayPal now faces a “more reasonable” bar. In a note to clients, he wrote that PayPal has spent the last few quarters worrying investors about whether further forecast cuts are on the way, but now Keane sees a “more realistic” setup for the payments processor. “While it is clear that PYPL needs to continue gaining market share and deepening user engagement, we believe that the KPI [Key Performance Indicator]benchmarks that the company must achieve in order to meet the updated guidance are more realistic than previously,” MarketWatch echoes Keane. Keane sees an “improved outlook” for PayPal and believes the company is “fully on the path to… recovery as long as it can meet its new, more achievable expectations”.
The Deutsche Bank analyst is also more optimistic about the prospects for the payment service’s shares due to his more optimistic assessment of the company. He raised his price target for PayPal shares from $114 to $140 and maintained his buy recommendation. Keene believes that PayPal shares have an upside potential of 47.32 percent.
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