PayPal Holdings’ stock (PYPL) has experienced a challenging week, prompting Evercore ISI analysts to adjust their outlook. In a recently released note, David Togut and his team downgraded PayPal’s stock rating from “Outperform” to “In Line” (the equivalent of “Hold”). They also revised the price target down to $65 from $85.
On Friday, the stock continued its four-session decline, dropping nearly 1% to $63.66 by midafternoon. The previous day, the company reported second-quarter earnings, which led to a 12% decrease in share value.
Operating margins saw a decline due to the growth of Braintree, a low-margin business that facilitates payments for digital wallets such as Google Pay, Apple Pay (AAPL), and PayPal itself. In the first quarter, operating margins stood at 22.7%, but dropped to 21.4% in the second quarter.
While PayPal reported having 431 million active accounts during Q2, this was a slight decrease from the previous quarters. Analyst David Togut believes that this decline is a result of the increasingly prevalent use of Apple Pay as an alternative to PayPal for online checkouts.
This combination of declining margins and intensifying competition poses challenges for PayPal’s revenue and earnings growth. However, management has been proactive in addressing these issues by modernizing the online PayPal checkout experience.
CEO Dan Schulman has acknowledged the competition posed by Apple Pay in recent calls with analysts. He highlighted PayPal’s advantages, such as the ability for consumers to take advantage of deals and coupons, as well as tracking orders post-purchase in the future.
Investors will await PayPal’s next earnings report, expected in November, to assess its future prospects. At present, there are no scheduled events before then.