AS PAYPAL embarks on an ambitious turnaround strategy to revitalise growth after a post-pandemic slump, Wall Street analysts expressed some caution over competition from Big Tech and beyond.
The concerns highlight the challenges to the profit margins of the company, which for years enjoyed the first-mover advantage in the digital payments industry but has ceded market share more recently to newer entrants.
Technology behemoths such as Apple and Alphabet’s Google have taken some share in mobile payments, according to analysts.
Apple is a bigger threat. Andrew Jeffrey, analyst at brokerage William Blair, said Apple Pay is “increasingly ubiquitous”. The company has also partnered with Affirm for its ‘buy now, pay later’ service.
“We are guarded on (PayPal’s) ability to drive meaningful card present and Venmo monetisation, particularly given the rise of competing contactless payments and Apple Pay,” Jeffrey said.
Venmo is PayPal’s peer-to-peer payments platform.
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PayPal shares have gained 4.2 per cent so far this year, trailing the benchmark S&P 500 index’s nearly 14 per cent gain.
While executives acknowledged rising competition on a call with analysts, CEO Alex Chriss said it had not lost any market share in desktop or web-based checkout.
Its dominance could, however, be challenged by physical card issuers such as Mastercard, which is aiming to phase out the manual card entry requirement for online payments in Europe by 2030 and potentially erode the edge digital firms have enjoyed.
“While this initiative is long-dated, it reinforces the fact that competition for PayPal’s core checkout button could continue to intensify,” analysts at BofA Global Research wrote in a note.
Near-term optimism
Even amid threats of competition, the stellar beat-and-raise second quarter eased investors’ concerns in the near term.
Shares in the payments firm rose 3 per cent in mid-day trading on Wednesday after at least 13 prominent Wall Street brokerages increased their price targets, while two raised their ratings.
Argus Research hiked PayPal’s rating to ‘buy’. Bernstein upgraded the stock to ‘outperform’ for the first time since 2021.
“We are encouraged by improved product momentum and overall execution under the new management team,” Bernstein said.
“We believe this can help PayPal sustain gross profit growth at mid-single-digit levels despite competitive pressures, which we continue to worry about.” REUTERS
