- Raymond James analyst John Davis downgraded PayPal Holdings Inc PYPL from Outperform to Market Perform.
- PayPal's strong start in 2023 versus the S&P 500 and the analyst's cautious stance over 4Q results led to the re-rating.
- While most investors expect initial 2023 revenue growth guidance to come in below the Street, Davis believes the 2023 top-line outlook will imply flat to negative growth for branded checkout, likely resulting in the share loss narrative growing even louder.
- Given new disclosures breaking out TPV by segment and specifically branded checkout and Braintree and unbranded, Davis' math suggests branded checkout likely lost share in 2022.
- More importantly, the analyst believes an initial 2023 revenue outlook below 7-8% would imply flat to negative growth for branded checkout, given that Braintree and unbranded should account for 400-500 bps of revenue growth, and OVAS should add another 200-300 bps.
- Unfortunately, given Salesforce Inc's CRM cyber week data, which suggested Paypal branded checkout lost share (primarily to Apple Inc's AAPL Apple Pay) as processed payments declined 6% Y/Y, the analyst believes the burden of proof has shifted to PYPL and fear the 2023 revenue outlook won't help.
- The analyst expects incremental cost cuts from additional layoffs to largely offset top-line weakness and expects the EPS guide to align with the Street.
- While the analyst is confident in management's ability to cut costs and likely exceed the prior EPS guide of 15%+ in 2023, the margin trajectory in 2024 and beyond is less clear as cost cuts will be in the rearview mirror and Braintree and unbranded will likely drive the majority of growth.
- Although the stock is still relatively inexpensive, Davis moved to the sidelines as he believed significant multiple expansion would prove difficult if branded checkout loses material share.
- Price Action: PYPL shares traded lower by 3% at $83.08 on the last check Monday.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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