Markets tricked bottom fishers who bet that PayPal (PYPL) bottomed and would rally back to $200. Last week, PYPL stock lost almost 5% and revisited last months’ low. Why is the fintech mega-cap leading the decline in Fintech?
Markets signaled their disappointment in PayPal’s slowing growth when they speculated it would buy Pinterest (PINS). PayPal’s payment solution on e-commerce shopping sites faces increasing competition. Affirm and Square (SQ) are some of the firms pressuring PayPal. Incumbent credit card firms like Visa (V) and Mastercard (MA) will also invest to re-take lost market share.
Visa stock rebounded ahead of the upcoming earnings report. Investors expect it will post strong cross-border shopping activity. As the pandemic lockdown eases, Visa will post higher transaction volumes. At similar valuations, V and MA stock is more attractive than PayPal. In turn, PayPal is less risky than fintech firms like SoFi (SOFI) and Affirm (AFRM).
Opportunity
PayPal might post strong operating profits in its next report. It had the flexibility to raise fees and widen spreads. Still, if the company posts weaker margins, it may increase customer fees in the next few quarters.
Customers may scoff at the higher costs by leaving the platform. Yet PayPal is an established payment option. This would limit the lost customer base.
