PayPal (NASDAQ:PYPL) shares moved lower on Thursday after a Morgan Stanley analyst downgraded the stock, pointing to a combination of structural challenges and execution issues that are expected to continue weighing on growth, profitability and investor confidence.

Morgan Stanley analyst James Faucette cut his rating on PayPal to Underweight and reduced his price target to $51 from $74. The stock was down about 1.7% in premarket trading by 06:03 ET.

The downgrade is based on four main concerns. First, Faucette highlighted ongoing issues with PayPal’s core Branded Checkout product, which he believes has been slow to evolve and is now losing market share.

“We think PayPal moved too slowly on improving Branded Checkout, and recent initiatives under new management are proving to be more complex and time-consuming than expected, and still aren’t moving the needle on usage as we hoped they would,” he wrote.

According to the analyst, persistent friction and inconsistency in the checkout process are likely to drive further share losses to rival digital wallets, increasing competitive pressure on pricing.

The second concern relates to the emergence of agentic commerce, which Faucette views as a longer-term structural risk. While adoption remains in its early stages, he believes the trend will continue to overhang PayPal’s valuation for years.

“In the meantime, [we] don’t anticipate incremental usage of PayPal on ChatGPT or other agentic platforms given a history of poor tech integrations especially vs. players like Stripe and Adyen,” he wrote.

Faucette also expressed growing skepticism around Venmo’s monetization prospects. In his view, PayPal has largely missed the opportunity to meaningfully monetize Venmo’s younger user base, following years of limited progress in expanding merchant acceptance and rising competition from other peer-to-peer and fintech platforms.

Finally, the analyst flagged earnings risk and the potential for downward revisions to medium-term guidance. He sees a heightened risk of adjusted EPS cuts driven by slower growth, continued investment requirements and higher marketing spending to protect market share.

While increased share buybacks supported by roughly 120% free cash flow conversion could provide some support, Faucette expects management to revisit and potentially lower its medium-term targets. He now forecasts transaction margin dollar growth of around 3.3% in 2027, well below PayPal’s previous guidance calling for high single-digit growth.

PayPal stock price

Join the discussion: Connect with other investors on your favorite stocks or explore the top-talked-about stocks on our Breakout Boards.

This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. Always conduct your own research and consult with a qualified financial advisor before making investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.