PayPal Holdings (PYPL) had a rough Thursday after Morgan Stanley delivered a scathing downgrade that questions whether the payments giant can keep up with its faster-moving competitors.
The Downgrade Details: Morgan Stanley analyst James Faucette downgraded PayPal from equal-weight to underweight and cut the price target from $74 to $51. That's not a gentle tap on the brakes—it's a pretty aggressive call that the stock has further to fall.
So what's the problem? According to Faucette, PayPal has moved "too slowly" on branded checkouts, which allow merchants to customize their digital payment experience. While competitors have been rolling out these features, PayPal has been lagging, and it's costing them market share.
The AI Problem: There's also the matter of artificial intelligence. Faucette pointed to PayPal's "history of poor tech integrations" as evidence that the company won't be able to capitalize on emerging AI agent partnerships. Case in point: back in September, OpenAI partnered with PayPal competitor Stripe to offer instant checkout within the ChatGPT app. PayPal? Sitting on the sidelines.
The Venmo Opportunity That Wasn't: Then there's Venmo. PayPal owns what should be a goldmine for capturing younger, digitally native users. But according to Faucette, the company has been painfully slow to monetize that relationship and has essentially missed the boat on converting those users into meaningful revenue.
The Financial Squeeze: The analyst also sees trouble ahead on the numbers. He anticipates increased risk of downward earnings-per-share adjustments as growth slows. Making matters worse, if PayPal actually tries to fix these problems, Faucette expects higher operating expenses and bigger marketing spend in the near future.
It's worth noting that PayPal has actually been performing decently on earnings. The company has beaten earnings-per-share estimates for six consecutive quarters and hit expectations for revenue in three of the past five quarters, most recently pulling in $8.42 billion.
Price Action: PayPal shares were down 0.10% at $60.13 at the time of publication, trading well off the session lows despite the negative analyst commentary.