PayPal (NASDAQ:PYPL) has seen its shares in a free fall since last September. One of the pandemic hero stocks, PYPL ended up down 19% in 2021. The misery has continued through 2022. Little more than two months into the new year, PYPL stock is down 51% so far, including a single-day loss of 24% after a disappointing fourth quarter earnings report in February.
The latest reason to avoid PayPal stock? The Russian invasion of Ukraine.
Over the weekend, PayPal announced it was shutting down services in Russia. This comes after an announcement a few days earlier that it would no longer allow new users from Russia to sign up for its services.
While the move is the right one in terms of public sentiment and supporting government sanctions against Russia, the entire situation is nothing but bad news for PYPL stock.
Here’s why.
PayPal Shuts the Door on Russia
On March 2, PayPal took the first tentative step toward joining the growing number of companies that are punishing Russia by shutting down their business in the country. That first move was to stop allowing new users from Russia from signing up for a PayPal account. PYPL stock closed down 4.9% the next day.
The company got even more serious on March 5. PayPal’s CEO announced: “Under the current circumstances, we are suspending PayPal services in Russia.”
Under the shut down of services, PayPal is still allowing Russian users to withdraw money from their account for a limited time. Other than that, Russian PayPal account holders are essentially unable to do anything. The company’s Xoom international money transfer tool is also shut down.
The impact on PayPal revenue is expected to be minimal. According to Cowen Equity Research, American payment companies in general (credit card companies, PayPal and payment services companies) derive less than 5% of their revenue from Russia. Cowen says that PayPal may have the least exposure of them all.
However, even if PayPal’s exposure is low enough to barely be quantifiable, it’s still a hit. PayPal in 2020 would have shrugged it off. PayPal in 2022 was already under scrutiny for slowing growth. PYPL stock is bound to feel the impact of any loss of users or transactions.
Russia Could Spur Crackdown on Cryptocurrencies
The bigger issue for PayPal with the Russia situation may turn out to be cryptocurrencies. For one thing, the war has introduced yet more volatility into the crypto market. However, there is growing potential for much larger implications. With banks and money transfers being shut down, concern is growing that Russia will use cryptocurrency to sidestep sanctions. That is spawning a U.S. Department of Justice task force designed to prevent the use of cryptocurrencies for money laundering or to evade sanctions.
This is part of a larger fear among the crypto community that governments could move toward actively regulating cryptocurrencies and transactions. Any such moves would be incredibly destabilizing for cryptocurrencies, undermining their anonymity. The situation with Russia — and concerns that the country could be using crypto to get around sanctions — could well be the catalyst that finally puts cryptocurrency under the scrutiny and regulation that many users fear.
Given PayPal’s embrace of cryptocurrency, any regulatory moves that increase volatility, destabilize cryptocurrency values or reduce the popularity of cryptocurrencies are likely to have a negative impact on PYPL stock.
Bottom Line on PYPL Stock
A week ago, I wrote that PYPL stock was not a great pick, despite a two-session rebound. Shares kept up that positive momentum for one more day before resuming their slide. With PYPL now trading below $100, they are at a new 2022 low and at a level not seen since the early days of the pandemic.
Many stocks have been caught up in the events of this year and experienced a significant pullback. In many of those cases, the lower price offers a buying opportunity. However, in the case of PayPal, the situation is far more extreme. This is a stock that has been losing ground since last fall and is now worth less than half what it was selling for a year ago. PYPL stock rates an “F” in Portfolio Grader, which is another big red flag for potential investors.
With so many factors stacked against the company right now, I would take a hard pass on PayPal.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
