Investors had big hopes when PayPal Holdings, Inc. (NASDAQ:PYPL) reported its fourth quarter of 2021 results early this month. The company’s Non-GAAP EPS of $1.11 in the fourth quarter was below estimates of $1.12.
The stock plunged 17% following the results. It was also dampened by a revenue guidance increase of 15% to 17% in FY22, below estimates of 17.9%. Non-GAAP EPS of $0.87 guidance also missed estimates of $1.16.
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Nevertheless, PayPal’s revenue of $6.9 billion in Q4 2021 beat estimates of $6.87 billion. This underlined PayPal’s dominance in the payment sector. Its active accounts also grew by 13% to 426 million. So, are expectations to blame, or is PayPal falling apart?
PayPal has enormously benefited from an increase in online payments during the pandemic. As a result, its earnings have been beating estimates, and this may have raised hopes. Jumping from a low of around $121 at the beginning of the pandemic to a high of $310 in mid-2021 is not a small achievement.
As a narrow moat company, PayPal suffers from high expectations even as the pandemic wane and online transactions fall. Projected rate hike by the Federal Reserve, which is hitting growth stocks, is also affecting PayPal.
Technically, PayPal is bearish, with a potential cross-over of the 50-day MA and the 100-day MA likely to accelerate weakness. Skepticism over the expected rate hike and the Ukrainian crisis could add bearish weakness. However, the stock is rebounding, and a break above $121 could welcome bullish momentum. However, with weak fundamentals, $86 looks the likeliest bottom for PayPal.
Summary
PayPal is bearish and could extend weakness to $86. However, the stock remains robust and could rise further if the market absorbs the higher rate environment. Investors could also price the stock in the post-pandemic period pushing it higher.
Thus, PayPal is a buy after a further dip to around $86 or a break above $121. Reclaiming the $310 level would still be a toll-order for PayPal, with additional resistances at $179.
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