A sign is placed outside PayPal’s headquarters in San Jose, California.
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PayPal shares sank more than 5% Wednesday after Bernstein analysts downgraded the stock to hold, citing concerns that the company faces a wide range of risks.
“It is hard not to recognize PayPal as the leading digital wallet in an increasingly digital world (one of the reasons we upgraded the stock two years ago),” the analysts wrote. “However, we believe that change is accelerating, and PayPal is now risking disruption versus being disrupted.”
Bernstein analysts are concerned about the increasing focus of e-commerce around large platforms such as Shopify and Amazon, which account for 32% of the US e-commerce market.
Analysts said Shopify “is emerging as an irreplaceable competitor” in PayPal’s core small and medium business market, and poses an additional risk as it launches its own payments platform. Similarly, Amazon is set to begin accepting Venmo from PayPal as an alternative payment in 2022, but Bernstein believes Venmo is currently “severely under-revenue”.
Analysts are also concerned that PayPal is “under siege with a thousand cuts” from other payment solutions ranging from Apple Pay and Square to buy-now, and later payment options from Affirm and Klarna, which are growing between 50% and 100% annually, the analysts wrote.
“We believe Square’s pending acquisition of Afterpay is a game-changer and accelerates its efforts toward becoming the dominant payments ecosystem in the United States,” the analysts wrote, noting that PayPal faces competitive risks as Square moves online and PayPal competes with the Cash app.
“While PayPal is actively investing and developing, it simply has more room to defend against its peers in our view,” they wrote.