PayPal stock sinks 10% after margin guidance narrowed; Credit Suisse downgrades
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PayPal Holdings (NASDAQ:PYPL) stock dropped 10% in Tuesday premarket trading after the payment tech company reduced its 2023 operating margin guidance to at least 100 basis points from its previous expectation of ~125 bps.
During the company's earnings call on Monday, management said operating margin expansion will be lower in H2 2023 than it will be in the first half. As well, its operating expense decline will be lower in Q3 and Q4 than it was in the first two quarters of the year as it laps the beginning of its cost-savings program.
Credit Suisse analyst Timothy Chiodo downgraded PayPal (PYPL) to Neutral from Outperform even though the company's Q1 earnings suggested at least stable trends in branded checkout growth.
He cites some discrete items affecting Q1 growth â invoicing weakness, ending PayPal unbranded, and discontinuation of PayPal Here â and persisting in the near term.
"Given the prospects for continued transaction margin pressures throughout 2023 (partly mix driven), PayPal's vertical skew (discretionary) in an uncertain macro backdrop, pending management transition, and increasing competitive pressures (longer term), we find it challenging to recommend the shares at this time," the analyst wrote in a note to clients.
Chiodo could become more constructive on the shares if he sees the "potential for a resumption of more meaningful total company gross profit growth in 2024 and beyond."
His Neutral rating aligns with the SA Quant rating of Hold, but contrasts with the average SA Author's rating and average Wall Street rating, both at Buy.
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