Why PayPal Stock Is Down By 12% Today

PayPal Stock Retreats As Q4 Guidance Disappoints

Shares of PayPal found themselves under strong pressure after the company released its third-quarter results. PayPal reported net revenue of $6.18 billion and adjusted earnings of $1.11 per share, beating analyst estimates.

The company added 13.3 million net new active accounts in the third quarter and ended the quarter with 416 million active accounts. On the cash flow front, PayPal generated $1.29 billion of free cash flow in Q3 2021.

In the fourth quarter, PayPal expects to report net revenue of $6.85 billion – $6.95 billion and adjusted earnings of $1.12 per share. The market is clearly disappointed by the soft guidance. Many analysts have already rushed to decrease their price targets for PayPal stock as they adjusted their models to account for slower growth.

What’s Next For PayPal Stock?

Shares of PayPal have already lost plenty of ground since July, when the stock made an attempt to settle above the $310 level. The company’s performance did not meet market’s elevated expectations, and traders rushed out of PayPal shares.

Currently, analysts expect that PayPal will report earnings of $4.72 per share in 2021 and $5.83 per share in 2022, so the stock is trading at roughly 35 forward P/E, which does not look cheap in the current market environment.

The key problem for PayPal stock right now is that established competitors in the payments space like Visa and Mastercard are trading at lower multiples. The valuation gap between PayPal and Visa/Mastercard has closed after the recent sell-off, but it is not clear why PayPal should continue to trade at a premium to peers if the company fails to meet growth targets.

In this light, there may be more room for multiple compression in PayPal’s case, which could push the stock below the $200 level. At the same time, it should be noted that the major sell-off may attract speculative traders who are willing to bet on the stock which is down by roughly 35% from its peak.

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