More of PayPal Holding's growth will come from its Braintree unit — which includes the Venmo payment service — but the problem for PayPal stock is unit's low profit margins, one Wall Street analyst says.
Susquehanna analyst James Friedman on Tuesday downgraded PYPL stock to neutral from buy.
"Braintree is quickly gaining share within PYPL's total payment volume creating negative leverage from mix," Friedman said in a report to clients.
He added: "As Braintree is likely to continue driving PYPL as a whole, its unit economics may drag on PYPL consolidated results. Consensus may underestimate the yield and transaction expense pressure which PYPL may experience. With the risk of 'negative leverage' from this mix shift — and the stock up 36% off its lows — we are moving to neutral."
PayPal stock slipped 3.6% to close at 91.63 on the stock market today.
PayPal Stock Down More Than 50%
With Tuesday's loss, the company's shares are down more than 52% in 2022. But PayPal stock has clawed back from a low of 67.58 set on July 1.
Meanwhile, shares plunged from an all-time high of 310.16 on July 26, 2021.
PayPal stock holds a Relative Strength Rating of 33 out of a best-possible 99, according to IBD Stock Check-up.
Also, San Jose, Calif.-based PayPal acquired mobile payments company Braintree in 2013. A peer-to-peer payment service, Braintree's Venmo lets friends or families transfer money to each other. It competes with the Cash app from Square-parent Block.
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As e-commerce boomed during the coronavirus pandemic, shares in PayPal soared. However, e-commerce growth has reverted back to pre-pandemic levels.
In August, the company confirmed that hedge fund Elliott Management has taken a $2 billion stake in PayPal stock.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
