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PayPal shares dipped 4.36% after Bernstein downgraded its status due to rising competition that could possibly disrupt its market.
Shares of multinational online payment platform PayPal Holdings Inc (NASDAQ: PYPL) dropped 4.36% on Wednesday after Bernstein analysts downgraded the stock. Bernstein analysts reduced the price target from $260 to $220, and downgraded PayPal stock from the equivalent of a buy to a hold. The analysts ascribed the reason for this to a number of risks that PayPal is facing. As one Bernstein analyst put it:
“PayPal’s positioning as a leading digital wallet in an increasingly digital world is hard not to acknowledge (one of the reasons we upgraded the stock 2yrs ago). That said, we believe change is accelerating, and PayPal now risks getting disrupted vs. being a disruptor.”
PayPal shares are currently down by almost 13% this year alone, while the NASDAQ Composite is up by 25%.
Bernstein Earmarks Amazon, Shopify, Square as Credible Threats to PayPal Market Share
According to Bernstein analysts, the strong growth of e-commerce around online retail giants such as Amazon.com Inc (NASDAQ: AMZN) and Shopify Inc (NYSE: SHOP) make up about 32% of the US e-commerce market. This seems to be giving PayPal a run for its money.
For instance, Shopify now looms as a threat in the core small and medium-sized markets that PayPal once dominated. In addition, it is likely to become even more prominent as Shopify starts its own payment platform. Also, analysts explain that although Amazon will soon start accepting PayPal’s Venmo as a payment option in 2022, Venmo isn’t being adequately monetized.
Additionally, other payment solutions from several other prominent tech-centric and online payment firms are also beginning to emerge. These include Square, Apple Pay, Affirm’s buy now, pay later scheme, and Klarna. The aforementioned are all experiencing annual growth ranging from 50% to 100%.
Bernstein analysts particularly pointed out Square’s imminent acquisition of Australian fintech firm Afterpay as “game changing”. They say that this move propels the Jack Dorsey-founded company towards “becoming a dominant payments ecosystem in the US”. The analysts also referenced Cash App, a Square-developed mobile payment service that is also in direct competition with PayPal.
Finally, analysts acknowledged that PayPal is doing the best that it can to stay competitively relevant. However, “it simply has more turf to defend vs. peers in our view.”
PayPal’s Q3 Report
Earlier this month, on November 8th, shares of PayPal slumped by more than 10% after the company released its earnings report. Highlights of this were the disappointing revenue forecast for the rest of the year and unimpressive sales guidelines for 2022. PayPal’s earnings for the third quarter fell short of estimations, and the company expressed concerns over consumer spending.
PayPal and Crypto
In September 2021, PayPal announced that its UK customers could start buying and selling crypto – Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. The online payment giant enlisted the services of blockchain-specializing company Paxos for the rollout of that initiative. Paxos had previously collaborated with PayPal on a similar initiative rollout in the US earlier. According to PayPal at the time, the plan was to cover much of the Western Hemisphere, one country at a time.