Shares of PayPal (PYPL) have lost a third of their value since peaking above the $310 level in late July. Much of the selling pressure has come from a couple of missteps, like its near-acquisition of Pinterest (PINS) and disappointing guidance following PYPL’s most recent earnings report.
To start, PYPL’s interest in PINS was a head scratcher. Most analysts were relieved when the company backed off a potential $45 billion takeover of PINS after receiving negative feedback from its shareholders.
Additionally, the PINS deal was viewed as a significant integration risk for PYPL, specifically in terms of execution, and likely would not have improved PINS’ user engagement.
As far as earnings, the company recently reported mixed third-quarter results. Earnings per share of $1.11 topped forecasts of $1.07, but revenue of $6.18 billion fell shy of forecasts for $6.23 billion.
To compound the situation, PYPL said it expects fourth-quarter earnings of $1.12 per share on revenue between $6.85–$6.95 billion. Wall Street had penciled in a profit of $1.27 on $7.24 billion in revenue.
Additionally, revenue guidance for fiscal year 2021 was revised lower by 18%, to $25.3–$25.4 billion, versus forecasts of nearly $26 billion. The company said 2022 revenue would likely rise by 18%, to $30 billion, but well below projected revenue of $31.6 billion.
PYPL used the excuses of supply chain constraints and general concerns over the economy for the decreased numbers, but the market wasn’t buying it.
One bright spot, however, was PYPL’s Venmo app, which began supporting cryptocurrency services in April. The company said payment volume jumped 36%, to $60 billion, with customers having the ability to buy, sell, and check out with digital currencies.
PYPL also announced a new deal with Amazon that will start next year, when users will be able to make purchases on Amazon’s website and mobile shopping app with their Venmo accounts. This should offset the 45% drop in volume from eBay’s (EBAY) marketplaces, which now represents less than 4% of revenue.
As you can see from the chart below, shares are hovering around $200, with the 52-week low at $183.54. While it is tempting to start nibbling at current lows, savvy investors may want to wait to see if shares can consolidate at current levels. If not, a drop below the $200 level would likely lead to a retest towards the $180–$185 area, and fresh 52-week lows.
The relative strength index (RSI) is clearly showing shares are oversold with a current reading just above 20. When RSI is this low, it signals a rebound could be coming.
Another warning signal is that the 50-day moving average has fallen below the 200-day moving average to form a death cross. This typically confirms lower lows down the road.
It might be prudent to add PYPL stock to your watch list, as it still remains a cashflow machine. However, it will likely take several quarters for the company to regain Wall Street’s trust.