I believe that PayPal Holdings, Inc. (NASDAQ:PYPL) is destined to re-enter a down channel as a result of several factors, including escalating bearish sentiment, a breach of a crucial technical support level, the increased risk associated with Q4 2022 guidance, and sluggish net new active account growth.
Due to a general economic slowdown and rising inflation, PayPal stock has also raised the risk of its sales growth, hindering its ability to grow its transaction volume in 2022 and 2023. I think PayPal stock is about to test those levels because the company made new lows in July, and business conditions aren’t getting better.
Because of the unattractive risk/reward connection, in my opinion, PayPal stock may decline to $50, which would align with my estimate of its fair value.
Growth in Net New Active Accounts
The slowing of net new active account growth in 2022 is the main problem for PayPal. The fact that PayPal has cleaned up its books and removed many ghost accounts is one factor in the halt in account growth.
In addition, PayPal’s net new active account growth is slowing due to economic challenges, with inflation being a key concern for financial institutions, particularly Fintechs.
In Q2 2022, PayPal grew its overall number of accounts to 429 million, but owing to industry challenges, the company gave up on its initial account growth goal. PayPal has reduced its previous prediction of 15-20 million new accounts to approximately 10 million.
Total payment volume is slowing down, consistent with PayPal’s negative net new active account guidance (TPV). The Covid-19 pandemic caused the growth of PayPal’s total payment volumes, which were $340 billion in Q2 2022, to drop from 40% in 2Q-21 to 9% in Q2 2022. Predictably, PayPal’s total payment volume slowed down even more in Q3 2022, raising the likelihood that its guidance will be exceeded.
Will PayPal Cut its Guidance Once More?
Of course, I think there is a good chance that the third quarter guidance will be revised, especially if PayPal’s total payment volume continues to fall in Q3 2022.
In 2022, PayPal expects to earn between $3.87 and $3.97 per share, up from $3.81 to $3.93. However, the primary growth driver for PayPal is largely outside of the company’s control, and declining GDP resilience may impact 2022 earnings and net new active account guidance.
In Q3 2022, earnings are predicted to be $0.96 per share, down 14% from the prior year. I believe that a material earnings miss would be bad for PayPal’s stock.
In June, PayPal hit a 52-week and multi-year low of $67.58 before making a comeback in line with the market in July and August. The recent decline in the stock market has hurt PayPal stock, which is currently down almost 54% in 2022.
The Relative Strength Index indicates that the stock of Fintech is not oversold. A short-term sell signal and a further slide in the price of PayPal’s shares are indicated by the fact that PayPal stock has lately dropped below the 50-day moving average.
The stock of PayPal will, in my opinion, at the very least, test its June lows and widen its short-term down channel, given the bleak economic landscape and sky-high inflation.
PayPal Stock Assessment
My estimation has not changed since my previous update, and I still think PayPal stock is worth roughly $50.
However, PayPal does have one advantage that might influence future perceptions. There was significant excitement when the Fintech business revealed in August that Elliott Management had invested in PayPal during the third quarter. The investor is pushing for cost reductions, stock buybacks, and other strategies to increase profitability and stock price.
Paul Singer is the activist hedge fund manager of Elliott Management, which is renowned for its straightforward approach to investing. The successful turnaround of PayPal can raise the price of the shares.
Bottom Line
Despite having an investor on board who is pressing for actions to increase the stock price, PayPal is in a very precarious situation.
Suppose economic uncertainties, notably inflation, continue to impact the company’s capacity to deliver significant transaction and account growth. In that case, PayPal’s third-quarter outlook may need to be lowered downward once more.
Additionally, I think PayPal stock technical situation is a cause for concern, particularly the recent plunge below the 50-day moving average.
I predict that soon, the stock of Fintech will test new lows and decline in price toward a $50 price target since PayPal’s outlook contains higher-than-acknowledged risks.
Featured Image- Megapixl @ Andreistanescu
