The payments-processing space has become increasingly crowded in the 2020s. Along with that, PayPal (NASDAQ:PYPL) has the additional challenge of transitioning a new CEO and a new chief financial officer (CFO) into those roles at the company. Thus, I view PYPL stock as a “sell” as PayPal’s comeback is far from assured. And, if it happens at all, might take a very long time.
Making matters worse, PayPal just got downgraded by an analyst who issued an important warning for prospective investors. So, we’ll definitely address the major problems that should convince prudent traders to avoid PayPal stock.
PayPal’s ‘Generational Problem’
It’s always interesting when a bullish analyst gives us a bearish idea. In particular, Mizuho analyst Dan Dolev is generally bullish on PYPL stock, but he recently acknowledged that PayPal “has a generational problem.”
The next time you see a PayPal button on the checkout page of an online store, consider this. PayPal’s global share of the U.S. payments market (according to Barron’s) is just 8%. And remember, the PayPal brand has to compete with Apple (NASDAQ:AAPL), which has almost universal name recognition among young consumers.
Sure, PayPal also owns the Venmo brand. But then, Amazon (NASDAQ:AMZN) is dropping Venmo as a payment processing option at checkout. These are issues that eager PayPal stock investors ought to consider. PayPal will have to overcome its brand’s “generational problem” and somehow take market share from Apple Pay and other rival brands. That’s much easier said than done.
Are PYPL Stock Investors Willing to Wait Years for a Turnaround?
The company might actually stage a turnaround at some point. It’s a gamble to bet on this happening, though. Besides, even if there’s an eventual comeback for PayPal, the share price could stagnate for a while.
BTIG analysts Andrew Harte and Thomas Smith are evidently trying to warn prospective investors about this. “We see the process of returning the company to consistent and profitable revenue growth as a multiyear initiative, rather than a FY24 story,” they wrote about PayPal. That’s a bitter pill to swallow if you own PYPL stock and hoped to enjoy robust returns this year.
Analysts with Oppenheimer reinforced the BTIG analysts’ warning about PayPal’s long-term challenges. They stated, “The issue at hand is the duration of time before PYPL can stabilize operating margins without cutting expenses year over year.” Then they added, “This duration is likely counted in years.”
With that in mind, the BTIG analysts downgraded PayPal stock from “buy” to “neutral.” Meanwhile, the Oppenheimer analysts lowered their rating on PayPal shares from “outperform” to “perform.” So clearly, there are Wall Street experts out there who aren’t particularly enthusiastic about PayPal’s near-term prospects.
Minimize Your Exposure to PayPal Stock
You don’t need to panic-sell PayPal stock right now. The idea here is just to consider the potentially lengthy time frame for PayPal’s turnaround.
Bearing that in mind, investors might choose to minimize their exposure to PYPL stock. It will take at least a few more quarters to see what PayPal’s new CEO and CFO can really do. Therefore, unless some highly positive catalysts emerge soon, I’m not prepared to confidently recommend an investment in PayPal.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
