PayPal stock could pass $150 a share by 2026, Mizuho says.
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There’s plenty of upside for PayPal ’s stock, analysts say. The payments app just needs to get its spending under control.
That was the assessment of Mizuho Securities analysts who reiterated their Buy rating on the company in a note Thursday. The team, led by managing director Dan Dolev, says PayPal (ticker: PYPL) has the potential to boost margins by more than 10% if it focuses its energy on its already profitable core checkout business—rather than spending heavily on sales and marketing as well as research and development.
Investors would likely welcome a refocused company, as PayPal shares are off by more than 50% this year after riding high during the pandemic-induced e-commerce wave of 2020 and 2021. In April, the company cut its full-year outlook on worries over lower transaction volume.
Dolev and his team have a $120 price target on PayPal shares, which is 43% higher than recent trading levels. They say that by 2026, shares could pass $150 apiece, assuming PayPal is able to generate free cash flow in the range of $25 billion to $30 billion and repurchase shares. This would translate to earnings of $7 to $8 per share. Given that PayPal has historically traded around 20 times earnings, the $150 share price seems realistic.
But PayPal’s potential has been hindered by what Dolev said were “ambitious plans,” such as building a so-called “Super App” and pivoting into cryptocurrencies. Those efforts cost money and if PayPal could get its spending more in line with payments peers such as Visa (V) and Mastercard (MA), its margins would improve.
Roughly 16% of PayPal’s revenue was spent on sales and marketing last year, while peers spent in the mid -to high-single digits, Dolev wrote. PayPal’s R&D spending is roughly 20% of revenue, which is higher than the disclosed figures for some other payments companies.
PayPal shares were up 2.5% in morning trading Thursday.
Write to Carleton English at [email protected]
