PayPal, the payments-technology company, delivered better-than-expected fourth-quarter earnings. However, their weak guidance for 2024 has left both analysts and investors disappointed. The stock took a hit, dropping 9% to $57.56 in premarket trading on Thursday.
Despite reporting strong earnings, PayPal expects its adjusted earnings in 2024 to be roughly in line with the profit of $5.10 per share in 2023. This projection falls short of analysts' expectations, who had anticipated earnings of $5.51 per share for 2024.
Over the past 12 months, PayPal stock has already experienced a decline of 19%, while the S&P 500 has gained 22%. In an effort to reduce costs, the company recently announced a 9% reduction in its workforce. Although PayPal offers payment services to businesses and consumers, it faces fierce competition from industry giants like Apple and Google.
Analysts at J.P. Morgan, led by Tien-tsin Huang, expressed their disappointment with PayPal's performance. They lowered the price target on the stock to $70 from $75 while maintaining an Overweight rating. These analysts now anticipate a modest transaction growth of only 0.5% for 2024, compared to their previous estimate of 2.8%.
Another group of analysts from Susquehanna, led by James Friedman, also adjusted their projections downward. They now project a growth rate of 7.4% for payments in 2024, down from their initial estimate of 8.1%. Additionally, they revised their earnings expectation to $5.10 per share, down from $5.26. Susquehanna currently has a Neutral rating on the stock and a price target of $65.
Seaport analyst Jeff Cantwell expressed skepticism about PayPal's recently announced cost-cutting measures. He believes these actions are incomplete and likened the overall situation to a "Mission: Impossible" scenario without the usual uplifting ending seen in the movies. Cantwell holds a Neutral rating on the stock.
Although PayPal's weak guidance for 2024 has disappointed investors, many analysts highlight that the company has set a low bar for the year. While there may be pressure on the stock as estimates come down, management's strategic priorities could potentially lead to upside opportunities.
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