The applause for PayPaa’s new boss didn’t last long.
Hedge fund filing reports with the Securities and Exchange Commission often give an incomplete picture of a fund’s actual exposure. Elliott, for example, only reported owning 1 million shares of PayPal common stock, which means it likely acquired most of its position with instruments it doesn’t have to report. Although the most recent holdings report no longer includes any PayPal stock, it’s not clear if it still maintains exposure to the stock elsewhere.
A spokesperson for Elliott said the company declined to comment on the filing, describing the reports as “an incomplete snapshot of what a company like Elliott might own at any time.”
However, the report was poorly received by investors. On Wednesday, shares rose about 0.35% to $59.68 but were still down about 5.5% from Monday’s close.
PayPal CEO Dan Schulman, on an earnings call after the stake was revealed, called his discussions with Elliott “constructive and collaborative” and said its focus is on operational improvements, income-producing investments, and return of capital.
“They’ve come in to follow the change, and they’ve certainly been able to force them to cut costs,” said Dan Dolev, an analyst at Mizuho, who has a “buy” rating on the stock. “The message is not great.”
Since the August 2022 earnings call, PayPal shares have vanished. On Wednesday, the stock was trading at about $59.68, down 33% from its closing price on Aug. 2 and 80% from its pandemic-era highs in 2021.
Part of PayPal’s problem is how quickly consumers can return to pandemic spending patterns that don’t rely heavily on online orders.
But the cost savings Schulman expected also didn’t translate into the profit margin improvements that investors expected. PayPal’s operating margin in the second quarter fell by more than a percentage point to 21.4%, still believed to be up from 19.1% in the second quarter of last year. Part of that stems from how quickly PayPal’s “unbranded” payment product has grown for merchants, which has lower margins than the branded business most consumers are familiar with.
In the long term, PayPal faces stiff competition from tech giants who have recently developed their own payment options.
Apple Pay
It is almost ubiquitous in iPhone apps. In addition to Apple (AAPL), Alphabet’s Google (GOOGL), and
Amazon
(AMZN) has its own exit functions.
PayPal declined to comment.
Analysts still love stocks. Thirty-one of the 46 analysts are “buy” or “overweight” with an average price target of $85.88, according to FactSet. In fact, the stock looks cheap relative to history, with a forward price/earnings ratio of 11 versus its five-year average of 32.4.
Although he is bullish on stocks, Dolev does not see a catalyst in the near term that could cause their multiplier to expand again.
“It’s going to be treading water, at least until the new CEO shows real vision,” Dolev said.
Write to Joe Light at joe.light@barrons.com
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The problem with PayPal is that consumers are returning to pandemic spending patterns with fewer online orders.
Courtesy PayPal
The applause for PayPaa’s new boss didn’t last long.
The payment giant’s stock got a small bump when it announced this
gut instinct
CEO Alex Kress will take over as CEO next month.
PayPal
Holdings (stock ticker: PYPL) stock fell 6% Tuesday after activist hedge fund Elliott Investment Management revealed in a securities filing that it no longer owns shares. Last summer, Elliott said it had raised a $2 billion stake in the payments giant.
Hedge fund filing reports with the Securities and Exchange Commission often give an incomplete picture of a fund’s actual exposure. Elliott, for example, only reported owning 1 million shares of PayPal common stock, which means it likely acquired most of its position with instruments it doesn’t have to report. Although the most recent holdings report no longer includes any PayPal stock, it’s not clear if it still maintains exposure to the stock elsewhere.
A spokesperson for Elliott said the company declined to comment on the filing, describing the reports as “an incomplete snapshot of what a company like Elliott might own at any time.”
However, the report was poorly received by investors. On Wednesday, shares rose about 0.35% to $59.68 but were still down about 5.5% from Monday’s close.
PayPal CEO Dan Schulman, on an earnings call after the stake was revealed, called his discussions with Elliott “constructive and collaborative” and said its focus is on operational improvements, income-producing investments, and return of capital.
“They’ve come in to follow the change, and they’ve certainly been able to force them to cut costs,” said Dan Dolev, an analyst at Mizuho, who has a “buy” rating on the stock. “The message is not great.”
Since the August 2022 earnings call, PayPal shares have vanished. On Wednesday, the stock was trading at about $59.68, down 33% from its closing price on Aug. 2 and 80% from its pandemic-era highs in 2021.
Part of PayPal’s problem is how quickly consumers can return to pandemic spending patterns that don’t rely heavily on online orders.
But the cost savings Schulman expected also didn’t translate into the profit margin improvements that investors expected. PayPal’s operating margin in the second quarter fell by more than a percentage point to 21.4%, still believed to be up from 19.1% in the second quarter of last year. Part of that stems from how quickly PayPal’s “unbranded” payment product has grown for merchants, which has lower margins than the branded business most consumers are familiar with.
In the long term, PayPal faces stiff competition from tech giants who have recently developed their own payment options.
Apple Pay
It is almost ubiquitous in iPhone apps. In addition to Apple (AAPL), Alphabet’s Google (GOOGL), and
Amazon
(AMZN) has its own exit functions.
PayPal declined to comment.
Analysts still love stocks. Thirty-one of the 46 analysts are “buy” or “overweight” with an average price target of $85.88, according to FactSet. In fact, the stock looks cheap relative to history, with a forward price/earnings ratio of 11 versus its five-year average of 32.4.
Although he is bullish on stocks, Dolev does not see a catalyst in the near term that could cause their multiplier to expand again.
“It’s going to be treading water, at least until the new CEO shows real vision,” Dolev said.
Write to Joe Light at joe.light@barrons.com