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PayPal presses the Reset button

The downturn for PayPal‘s

PYPL 11.48%

once high-flying stock has been tough, but a reset of expectations could mitigate its landing.

PayPal said Wednesday that supply chain disruptions affecting e-commerce sales, plus a normalization of the mix of in-store and virtual consumption, continue to make it difficult to predict its business. So the company is cutting sharply in its guarantors for 2022. This includes a growth in net revenue that is about 4 percentage points slower than previously expected, now at around 11% to 13%. It also withdraws its medium-term guidance.

The good news for the stock is that expectations were already significantly reduced after the company marked a strategic focal point earlier this year. The reset of the guidance may actually be a starting point for some investors back to the stock.

Along with many fintechs, PayPal shares had fallen 56% so far in 2022 through Wednesday’s closing. With the new, lower guidance for 2022 adjusted earnings per. share, and after a rise of more than 3% in the stock on Thursday morning, PayPal is now trading around 22 times forward earnings. That multiple is still historically low. Even before the pandemic, from 2017 to 2019, the company typically traded well north of 30 times analysts’ forward-looking estimates, according to FactSet data.

One thing that can help the company earn a higher multiple back is that growth may soon resemble its pre-pandemic pace, especially as the company gets further away from the end of its former eBay relationship. The focus of the updated guidance already implies a growth of more than 15% in the second half of 2022. This may approximate or exceed the revenue growth rate in 2019. Considering that the company says that it builds into a deteriorating macroeconomic environment in the forecast, possibly . positive surprises in the background could now put the stock up for gains.

Of course, there are also some big differences for 2019. One is that there may now be slower growth ahead in the overall global e-commerce market than there was then when there was so much expansion during the pandemic. Although focusing on fast-growing retailers, PayPal can still surpass market growth. For example, its Braintree online payment processing business volume grew by 61% year-over-year in the first quarter.

In addition to payment growth, the pandemic may also have pushed the growth in the number of PayPal accounts forward. After adding over 120 million net new active accounts during 2020 and 2021, PayPal now expects to add around 10 million by 2022 – half of the top end of its previous guidance for the year and about a quarter of what it added back in 2019. Partly this is by design, as PayPal lets users who rarely make transactions withdraw, arguing that the cost of keeping them is not a high-return investment.

It sets the stage for PayPal to focus more intensely on increasing revenue from customers and merchants that it is already actively engaging. Although there are many players competing fiercely in various components of digital payments and trading, PayPal has a broad and global platform: It can offer payment processing, digital wallets, buy-now-pay-later, discounts and rewards, money transfers, online savings accounts, bill payments, peer-to-peer payments, cash-back credit cards, cryptocurrencies and more. It also still throws billions of itself into cash to promote further acquisitions or investments.

So whatever drives the next stage of growth in digital finance for a consumer or business, PayPal will very likely be there. But PayPal shares may not fly that high again until the next catalysts come into sharper focus.

Write to Telis Demos at telis.demos@wsj.com

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