PayPal Holdings, Inc. (PYPL) is facing some uncomfortable questions about whether its turnaround strategy is actually working. The company's shares traded lower Thursday as investors digested news that its core checkout business remains sluggish, and the path back to robust growth might take longer than hoped.

Bank of America Securities analyst Mihir Bhatia downgraded PayPal from Buy to Neutral and cut his price target from $93 to $68. The reason? Product upgrades and a refreshed checkout experience haven't delivered the kind of button usage bump the company was banking on.

The Checkout Problem

Here's the issue: PayPal's branded checkout is the heart of its business, and it's not beating as strongly as management expected. Bhatia notes that the company now views the fourth quarter as a step backward for branded checkout trends. That's especially concerning because this would represent the weakest expansion in several years, even after management already warned investors about tougher comparisons.

What makes this particularly puzzling is the timing. PayPal flagged continued spending softness into November, which stands in stark contrast to the generally upbeat holiday updates coming from retailers. The company's customer base skews toward middle- and lower-income households with heavier exposure to discretionary retail spending, which might explain why PayPal's experience differs from the broader market.

Investment Year Ahead

Adding to investor concerns, management has signaled that 2026 will be an investment year. That's Wall Street speak for "don't expect margin expansion anytime soon." While Bhatia still views PayPal's large consumer and merchant base favorably, along with faster innovation under new leadership, he argues the risk-reward profile looks balanced until there's clearer evidence the turnaround is gaining traction.

The worry isn't just about slow growth. It's about what that slow growth might mean. Slower branded checkout performance could reinforce fears that PayPal is losing ground to rival digital wallets and alternative payment methods. Bhatia points out that PayPal's branded checkout volumes have frequently grown more slowly than broader e-commerce benchmarks, leading some investors to worry the company could remain a market-share donor for an extended period.

Lowered Expectations

Bhatia responded by cutting his 2026 and 2027 earnings forecasts to reflect slower growth and higher investment spending. His new estimates sit slightly below consensus for those years, and he sees downside risk if 2027 also turns out to be investment heavy.

The stock closed down 0.36% at $60.98 on Thursday, a relatively muted reaction that suggests investors were already bracing for disappointing news. The bigger question is whether PayPal can prove the skeptics wrong and show that its strategic investments will actually pay off, or whether the company is simply fighting an uphill battle in an increasingly competitive payments landscape.