Oppenheimer Downgrades PayPal to Perform

Analysts at Oppenheimer downgraded PayPal (NASDAQ:PYPL) from Outperform to Perform. They explain that despite Braintree's volume growing by approximately 32% year-over-year in the third quarter of 2023, and likely maintaining mid- to high 20s growth in the medium term, the increase in non-transaction expenses makes it challenging to improve operating margins.

The consensus, which anticipates a slowdown in transaction margin contraction, expects around 19% year-over-year growth in unbranded volume for 2025. However, as profitability declines due to the shift from branded to unbranded volume, the analysts do not foresee a significant expansion in PayPal's price-to-earnings (P/E) multiple in the near term. The impact of PayPal's new initiatives like PayPal Credit Products (PPCP) on the company's profitability trajectory as a counter to the growing mix of unbranded volume will take years to materialize.

Following the recent rally in PayPal's stock, its valuation now more closely aligns with its improving e-commerce volumes. Given this scenario, the analysts believe there are better opportunities in peer companies. While remaining incrementally positive on payment stocks, they suggest moving to the sidelines on PayPal, thus the downgrade to Perform from Outperform.