PayPal (NASDAQ:PYPL) stock has pulled off a rebound that has lasted for two straight sessions. That doesn’t sound particularly impressive, but keep in mind, PYPL stock kicked off this month with its worst ever single-day loss. I’m pretty sure most shareholders will take a two-day gain of around 15% over a single-day loss of 24% any day. It’s a rare bit of good news in a year that has already seen PayPal shares lose 44% of their value.
Does this mean it’s maybe time to consider an investment in PayPal?
I would think twice about taking that plunge. There may be some opportunity for short-term gains here, but the long-term growth picture for PYPL stock still looks pretty grim.
Many tech stocks have taken a beating in 2022 due to concerns over issues like inflation, rising interest rates and war in Europe. PYPL has been in steep decline since last July — there’s more going on here than broad market concerns. Here’s why I would continue to be wary about investing any of my money in this struggling tech stock.
Earnings Trigger Worst Single-Day Rout for PYPL Stock
PayPal is one of those companies that made bank during the early days of the pandemic. Everyone was buying things online instead of shopping in person. With concerns the virus could spread by physical contact, cash was unwelcome. These were perfect conditions for a company that is a leader in online and contactless payment that also happens to operate Venmo — a popular digital wallet service.
Adding to the good times, in the fall of 2020, PayPal announced its members would be able to buy and sell cryptocurrency. They could also pay with popular cryptocurrencies at over 26 million merchants.
PayPal signed up new users at a rapid pace, transaction volume on its network exploded and the market reacted. Between the March 2020 market crash and last July, PYPL stock soared by over 250%.
Then the decline began. Shoppers returned to stores. Cryptocurrencies experienced multiple crashes. Cash returned to circulation. Stimulus payments ended. High-flying PYPL stock ended up shedding 19% of its value in 2021. The slide continued in 2022.
Then, on Feb. 1, the company reported its Q4 results. Earnings-per-share of $1.11 came in just under analyst expectations. It delivered a beat on revenue. However, the company missed its user growth targets and issued weaker-than-expected guidance for 2022, citing factors like inflation’s impact on consumer spending and ongoing supply chain issues. That guidance included revising its user growth targets downward. For the first quarter, PayPal says to expect EPS of 87 cents, compared to the $1.16 anticipated by analysts.
Wall Street did not like what it was hearing and PYPL shares closed down 24% the next day. That’s the steepest single-day drop for this stock.
Ebay Officially Dumped PayPal for Vendor Payments
Adding to PayPal’s challenges is eBay (NASDAQ:EBAY). PayPal was owned by eBay from 2002 through 2015. Shortly after the two companies split, rumors started that eBay would ditch PayPal in order to save money on fees. Last fall, the e-commerce auction site officially switched off PayPal as its payments processor. This means eBay deposits payments directly to site vendor’s bank accounts instead of to their PayPal account.
In terms of how badly that might hurt PayPal, HypeBeast estimates that eBay and PayPal were taking a combined 13% of each sale in fees. At this point, consumers can still pay for items on eBay using PayPal, but the site has also opened up easy access to a full range of payment options, including PayPal competitors like Apple’s (NASDAQ:AAPL) Apple Pay.
Bottom Line on PYPL Stock
Not everyone is as pessimistic as I am about PayPal’s situation. In fact there are plenty of investment analysts out there who are urging their followers to jump on PYPL stock. Even as PayPal shares were plummeting to start off February, there were bulls who saw the big loss as a golden buying opportunity.
I’m not saying that PayPal’s problems are fatal. However, with missed user growth targets, the volatility in cryptocurrency markets, eBay’s dropping of PayPal for vendor payment and the company’s own weak guidance for 2022? Then throw in the macro economic forces like rising interest rates that threaten to cut consumer spending — and payments. Now is not the time to buy this stock expecting a recovery. This time next year I might be recommending a different approach, but for now I think PayPal is facing too many challenges.
PYPL stock currently earns a lowly “F” rating in Portfolio Grader. Even at its lowest price in nearly a year, I wouldn’t risk an investment.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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