PayPal Holdings Inc. shares were sagging Tuesday after two consumer-facing names issued warning signs about their businesses and the state of shopping behaviors.
First Walmart Inc.
cut its financial forecasts late Monday, cautioning that inflationary pressures were forcing consumers to spend more than they’d like on food. This dynamic will require Walmart to make markdowns to move other inventory like apparel.
Then Shopify Inc.
announced Tuesday morning that it would be cutting about 10% of its staff, admitting that it had been too upbeat about the trajectory of e-commerce growth based on early pandemic trends.
PayPal is potentially sensitive to both of these issues. The company is seen as more exposed to discretionary spending than some of its payments peers, and PayPal acknowledged as early as February that it was already seeing some spending pullbacks from lower-end consumers. The company, of course, is also tied to the e-commerce market and brought down its forecast in its last earnings report, in what analysts saw as an admission that the company had been overly optimistic in projecting that pandemic-era e-commerce trends would persist.
See also: Walmart’s profit warning shows consumers are buckling under inflation pressure
That April guidance cut for PayPal may not be the last, according to Bernstein analyst Harshita Rawat, in a note to clients published early Tuesday, before Shopify’s announcement.
PayPal is currently targeting 15% to 17% revenue growth for the year excluding eBay impacts, compared with a prior forecast for 19% to 21% growth. But even the latest outlook “looks rather rosy against a backdrop of worsening e-commerce trends, uncertain macro, persistent inflation and strengthening dollar,” in Rawat’s view.
She now deems it “likely” that PayPal could pull down its forecast again, writing that her estimates are now 1.5 percentage points below the bottom end of PayPal’s own forecast, and 3% below consensus expectations for the second half of the year.
PayPal shares have been slammed this year, falling 59% over the course of 2022, but Rawat wonders whether a further cut to the company’s outlook would “matter” to investors.
“We are inclined to believe that a guidance cut might be dealt with gently by investors and intact guidance/numbers beat could be handsomely rewarded (in the stock),” she wrote. The company posts results next Tuesday.
PayPal’s stock is off 5.6% in Tuesday morning trading and currently the second-worst performer in the S&P 500
behind only Walmart.