PayPal dips after analyst downgrades the stock on these 4 factors

Investing.com -- Morgan Stanley analyst James Faucette on Thursday downgraded PayPal stock to Underweight, citing four structural and execution-related factors that it believes will continue to weigh on growth, earnings, and investor sentiment.

He also trimmed the price target to $51 from $74.

PayPal shares dipped 1.7% in premarket trading by 06:03 ET.

The first factor reflects concerns around PayPal’s core Branded Checkout product, which Faucette says has been slow to improve and is now losing share.

“We think PayPal moved too slowly on improving Branded Checkout, and recent initiatives under new management are proving to be more complex and time-consuming than expected, and still aren’t moving the needle on usage as we hoped they would,” he wrote.

Ongoing friction and inconsistency in the checkout experience are expected to result in continued share loss to competing wallets, which will lead to price pressure, the analyst added.

The second factor is the rise of agentic commerce, which Faucette views as a growing narrative and structural risk. While adoption is still early, the analyst believes agentic commerce will remain an overhang on PayPal’s stock for years.

“In the meantime, [we] don’t anticipate incremental usage of PayPal on ChatGPT or other agentic platforms given a history of poor tech integrations especially vs. players like Stripe and Adyen,” he wrote.

Faucette is also increasingly pessimistic on Venmo monetization. He says the window to meaningfully monetize Venmo’s younger user base has largely passed after years of slow progress in merchant acceptance and intensifying competition from other peer-to-peer and fintech platforms.

Lastly, the analyst flagged earnings risk and the likelihood of medium-term guidance revisions. He sees an elevated risk of downward adjusted EPS revisions due to slower growth, continued investment needs, and higher marketing spend to defend share.

While higher buybacks supported by roughly 120% free cash flow conversion may partially offset pressure, Faucette expects management to reset its medium-term targets.

He forecasts transaction margin dollar growth of around 3.3% in 2027, well below the company’s prior high-single-digit projections.

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