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PayPal Tanks as Wall Street Wonders Whether Problems Will Last

PayPal Tanks as Wall Street Wonders Whether Problems Will Last

(Bloomberg) -- Shares of PayPal Holdings Inc. tumbled the most since early 2018 on Thursday after the payments company lowered its revenue forecast for the year.

Chief Executive Officer Dan Schulman emphasized that the cut was “only a matter of delayed revenues.” But analysts were divided, with some stressing that the company’s issues were likely transitory, while others weren’t so sure.

Here’s a sample of commentary:

Raymond James, John Davis

“While management was adamant the lighter top line outlook was mostly just a push-out or delays in partnership implementation and pricing, we believe it could quickly become a show me story.”

The results don’t change PayPal’s mid-to-long term “story/thesis,” Davis said. However, he would “be patient and let the stock settle before adding to positions as the stock came into the print at all-time highs and is likely due for a breather.”

Rates shares outperform, price target $129.

Bernstein, Harshita Rawat

The results featured an “unexpected 2019 guide down but encouraging 2020 comments.” That’s “unlikely to shake off bulls from the stock but unlikely to bring incremental investors either,” especially at the current valuation, she said.

“We struggle to see the stock work at near-all time high valuation (and against negative revisions),” unless total payment volume, or TPV, growth can stay steady or accelerate, and recent partnerships start yielding “positive metrics.”

She rates the stock market perform.

Nomura Instinet, Bill Carcache

“We walked away from the call believing that the revenue headwinds that PayPal is facing are transitory.”

“Timing shifts aside, the most important barometers of the health of PayPal’s business -- metrics like new active accounts, customer engagement, and FXN merchant services TPV growth -- remain very strong, and we maintain our bullish long-term outlook.”

He reiterated his buy rating, and has a price target of $139.

Wolfe, Darrin Peller

“All eyes shift to third-quarter and 2020 guidance,” as PayPal’s partnerships, products and pricing initiatives may “materialize” in revenue in 2020.

He flagged “variables” that may drive growth, including international efforts; partnerships, such as with MercadoLibre Inc., Uber Technologies Inc., and Facebook Inc., and Venmo. Peller still sees PayPal as a “leading growth story within our coverage long-term.”

Keeps outperform, price target $135.

MoffettNathanson, Lisa Ellis

“We’d all better get used to PayPal’s quarters being a bit bumpy.” This year and next may be transitional for PayPal, as it “navigates through the simultaneous on-ramping of numerous major partnerships (e.g., Facebook, MercadoLibre, Paymentus, Walmart, Uber) and off-ramping of eBay,” she said. There may be further complications from the “lingering effects of the Synchrony transition and the iZettle acquisition.”

“We love this new strategic direction for PayPal, and do believe it is an inflection point for company performance and the stock, but, that said, we’re quite likely to see a bit of quarterly choppiness.”

Ahead of earnings, Ellis said investors may be watching for news on the mergers and acquisitions front, as the company “is back on the acquisition hunt” after its iZettle deal cleared.

Deutsche Bank, Bryan Keane

“This is the third quarter in a row PayPal reported soft results versus guidance and, like the past few quarters, we believe investors might look past short-term results to the strong growth prospects.” He added that “delays don’t change the investment thesis.”

Also, “key metrics such as net adds and engagement remain strong while Venmo monetization outpaces internal expectations.”

Rates shares buy.

Oppenheimer, Glenn Greene

PayPal delivered solid results, with revenue growing 12% from the prior year, earnings per share that beat estimates, TPV growth of 26%, and an operating margin that was a “strong” beat.

However, he added that “somewhat discouragingly,” PayPal moderated its revenue outlook.

Keeps outperform rating and raises price target to $125 from $116, with an assumed multiple that “considers PayPal’s unique competitive position within the large online payments market.”

Bloomberg Intelligence, David Ritter

“PayPal’s reduced guidance for 2019 revenue growth appears to be a timing issue related to delays in new services and price increases, but its key growth drivers continued recent momentum in 2Q.”

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Will Daley

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