PayPal Holdings Inc. continues to see growth in Braintree’s online payments product, but it may not be all good news, analysts said.
Susquehanna’s James Friedman downgraded PayPal shares;
It moved from positive to neutral on Tuesday, warning that Braintree’s growing presence in the broader PayPal business could have a negative impact on the company’s margins and performance or the company’s reduction in each transaction.
While PayPal is best known for its namesake mobile wallet and checkout button, the company also owns Braintree, which enables retailers to widely accept online payments.
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By Friedman’s estimates, Braintree accounted for 31 percent of PayPal’s total payment volume last year, and the company projects that portion will grow to 44 percent by 2023. In such a scenario, Braintree could account for 72% of PayPal’s total growth. In next year’s volume.
“Braintree is the engine that fuels PYPL – but it takes speed and margins,” Friedman wrote in a note to clients.
In his view, the consensus view “may overestimate the production and transaction-cost pressure that PYPL will face” from Braintree’s growing share of PayPal’s business mix. Braintree said it had higher transaction costs and lower overall revenue compared to its core PayPal business.
“The margin benefit from headcount management and the externalization of PYPL’s customer credit book may not be sufficient to offset the impact on Braintree’s margin,” he added.
Friedman has some macroeconomic concerns about PayPal relative to FedEx Corp.’s FDX.
Recent announcement that it will remove the full year view. The logistics company also indicated that its profit in the last quarter is expected to be significantly lower than its estimate.
Read: Why FedEx’s profit warning is bad news for the US economy.
FedEx “invoked challenges in the FedEx Express division, Asia and Europe,” Friedman wrote. “P.L.L.L.L.L.” .A.A.A.A.A.A.A.A.A.A.A.A.
He lowered his price target on PayPal stock to $100 from $115.
Shares of PayPal fell 2.5% in premarket trading on Tuesday. As for the S&P 500 SPX, they have lost half their value this year.
It’s down 18 percent.