What happened
Shares of e-payments specialist PayPal Holdings (PYPL +1.25%) fell 5.2% in 2:10 p.m. EST trading Wednesday afternoon.
You can blame Bernstein for that.
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So what
In a note out this morning, investment banker Bernstein cut its rating on PayPal stock from outperform (i.e., buy) to market perform (i.e., don't buy), and cut its price target on the stock more than 15% to $220 per share.
As StreetInsider.com reported, Bernstein is worried PayPal's business is at risk of being "disrupted" from two separate directions. On the one hand, the banker sees Big "eComm" companies like Amazon and Shopify getting even bigger, and gaining more clout in terms of being able to negotiate favorable rates with payment services like PayPal.
On the other hand, the analyst sees PayPal suffering a potential death "from a thousand cuts" as rival payments companies nibble away at its business. Buy now, pay later, Apple Pay, and Shop pay are all threats to PayPal's dominance, warns Bernstein. So, too, is the situation in which shoppers place their credit card information "on file" with an e-commerce company, such that paying with a card becomes shoppers' default way to shop -- so they don't even consider whether they might rather pay with PayPal.
Now what
Valued in excess of a quarter-trillion dollars, costing 50 times earnings and almost 50 times free cash flow, PayPal is priced like a fast-growing growth stock, but actually grew its sales only 13% last quarter -- and grew its earnings less than half as fast.
Make no mistake, despite all the criticism, PayPal remains an incredibly profitable and free-cash-flow-positive business. But when it comes to PayPal stock, Bernstein is right to worry that there's a disconnect between the stock's valuation and how slowly it's been growing lately.
