PayPal reports fourth-quarter earnings after the closing bell on Thursday.
Dreamstime
Wall Street looks to be getting a bit nervous ahead of earnings from
PayPal
due on Thursday.
Analysts have been trimming their price targets on the stock heading into results—and flagging factors that could lead to a gloomy outlook from the payments group.
PayPal
Holdings (ticker: PYPL) is due to report fourth-quarter results after the market close on Thursday. Analysts surveyed by FactSet expect the company to report earnings of $1.20 a share on revenue just shy of $7.4 billion for the final three months of 202. That represents 8% earnings growth and a 7% increase in sales year over year.
Expectations could be a little low. The average analyst estimate for fourth-quarter sales plunged after PayPal issued guidance in November, dropping from more than $7.7 billion and trending downward to the current consensus since. But low expectations aren’t necessarily a bad thing, especially if it leaves room for PayPal to impress.
“Ahead of 4Q results, we’re trimming estimates but remain positive on the stock due to the combination of low expectations, expense cutting upside, and a reasonable valuation,” Christopher Brendler, an analyst at D.A. Davidson, wrote in a Monday note. “Despite the recent shortfalls, PayPal remains a dominant online payments powerhouse, yet the stock trades at a significant discount not just to high-growth peers, but also industry benchmarks
Visa
(V) and
Mastercard
(MA).”
Brendler rates PayPal at Buy with a price target of $110 on the stock, which closed at $79.25 on Wednesday.
However, it isn’t just about the results. Investors will be just as—if not more—focused on PayPal’s outlook. That’s because a business like payments is sensitive to the macroeconomic backdrop, and Wall Street remains razor-focused on recession risks.
The outlook could be downbeat. Analysts at Mizuho Securities detailed in a Wednesday note that research into web traffic of about 25 of PayPal’s largest e-commerce checkout partners suggests the picture has darkened this quarter.
“The data show that e-commerce trends worsened in January. Although PayPal’s share of web traffic across those partner sites slowed considerably in January, we see no concrete evidence of a step-up in market share losses to
Apple
Pay,” wrote the analysts, led by Dan Dolev. “This is supported by similar slowdown in e-commerce trends at
Amazon
and
Visa,
as well as weakening web traffic for [buy now, pay later] operators.”
Mizuho rates PayPal at Buy, but on Wednesday lowered its price target to $100 from $105. The analysts also reduced their estimates for 2023 revenue growth to 10% from 14%.
D.A. Davidson’s Brendler shares the view of a potentially muted outlook from PayPal, but is optimistic that the company’s guidance won’t stray too far from what Wall Street is forecasting.
“While macro pressures increase the likelihood of a conservative guide, we still expect the range to include consensus as persistent strength in the U.S. offsets weakness in Europe,” he said.
Write to Jack Denton at jack.denton@barrons.com
Credit: marketwatch.com