Evercore cuts PayPal to ‘in line’ on margin pressure

Evercore ISI downgraded PayPal (NASDAQ:) to an In Line rating (from Outperform) and cut their 12-month price target on the stock to $65.00 (from $85.00) based on a 2024 target price-to-earnings (PE) ratio of 12, down from 15.

The financial tech and payments company released their 2Q earnings earlier this week, reporting $1.16 in adjusted EPS, in-line with consensus expectations. The company’s total revenue increased 7% to $7.287 billion, largely matching Consensus.

However, intensifying competition, combined with nearly 300 basis points of transaction margin pressure has resulted in growing challenges for revenue and earnings growth. Analysts point out that in the absence of a well-defined strategy for achieving year-over-year transaction margin expansion, the company’s potential for outperforming earnings is constrained.

They wrote in a note, “The recent emergence of growing credit losses on PYPL’s business loan book raises the possibility of another increase in loan-loss reserves over the next year. 2H/23 and 2024 operating margin leverage from non-transaction operating expense reductions will likely be limited.”

Management avoided providing 3Q23 operating margin guidance but expects some year-over-year contraction followed by expansion in 4Q23.

Shares of PYPL are down 1.18% in afternoon trading on Friday.