Guggenheim Downgrades PayPal On Likely Headwinds From Brexit, Payments Competition

PayPal Holdings Inc PYPL is likely to witness near-term pressure on its payment volume growth due to Brexit, medium-term headwinds from eBay Inc EBAY and intensifying competition, according to Guggenheim.

The Analyst

Guggenheim’s Jeff Cantwell downgrades PayPal from Buy to Neutral and removed the prior price target of $95.

The Thesis

PayPal reported fourth-quarter adjusted earnings per share of 69 cents, beating the consensus estimate on the back of investment income and a lower tax rate. Although the company’s total payment volume grew 25 percent in the quarter, it fell short of the estimate, Cantwell said in the Wednesday downgrade note. 

PayPal has projected TPV growth in the mid-20 percent range for FY19. The payments company could witness pressure on its TPV growth over the next few quarters, the analyst said. 

TPV growth is expected to be adversely impacted by the potential loss of cross-border trade between the U.K. and the EU following Brexit, Cantwell said, adding that eBay choosing a new payments provider will exert further pressure.

PayPal is also facing stiffening competition from Stripe, Square Inc SQ and Amazon.com, Inc. AMZN making progress with its Amazon Pay button, according to Guggenheim. 

The sell-side firm lowered its EPS estimates PayPal for 2019 and 2020 from $2.95 to $2.88 and from $3.48 to $3.42, respectively.

Price Action

PayPal shares were down 1.56 percent at $90.83 at the time of publication Wednesday. 

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Photo courtesy of PayPal.