PayPal's Gives Poor Guidance and Is Down

PayPal had its biggest drop for the stock since the early days of the pandemic in March 2020. It’s down 20% in the last month. PayPal investors are focusing more on the company’s guidance than on an announced partnership between Venmo and Amazon.Companies like PayPal and Lightspeed Commerce have plunged in recent weeks and both have their issues.Starting next year, PayPal users will be able to make purchases on Amazon.com and the Amazon mobile shopping app with their Venmo accounts. However there’s new taxes rules as well for PayPal and Venmo users.PayPal CEO Dan Schulman gave guidance for next year that surprised investors. The company said revenue for fiscal 2022 will increase about 18%, which would equal full-year sales of close to $30 billion. Analysts were projecting revenue of $31.6 billion, according to Refinitiv.PayPal had already missed estimates on third-quarter revenue and lowered its forecast for the current year. Notably, PayPal continues to add new users at a solid clip. The payments platform gained 13.3 million net new active accounts during the quarter, bringing its total account base to 416 million.Both companies however appear to be a bit behind in the BNPL trend even as Affirm’s stock soars. PayPal’s stock is down 14% in 2021, while the Nasdaq is up 23% for the year.I think companies like Disney, Lightspeed Commerce and PayPal could struggle in a retail environment where a Covid-19 wave appears to be on the horizon. Still PayPal is a very financially secure company. It’s nearly a consumer sentiment value stock at this point. PayPal's cash production is bullish. Operating and free cash flow climbed 15% and 20%, respectively, to $1.5 billion and $1.3 billion. That allowed PayPal to reward shareholders with $350 million in stock repurchases.In a Squid game of inflation and retail sentiment uncertainty, PayPal can weather pretty much anything. PayPal could still acquire Pinterest, it would certainly make things interesting. If you think we are in an equity bubble, PayPal’s real stock value is likely closer to $130. So this is not a buy on the dip play at these levels.The stock is at $203 today. As muted as Guidance was, it’s nothing very surprising given inflation and an unpredictable 2022 with supply-chain issues. Management expects revenue of $6.85 billion to $6.95 billion and adjusted earnings per share of $1.12 in the fourth quarter. That was below Wall Street's estimates, which had called for revenue of $7.24 billion and adjusted per-share profits of $1.27. The average analyst thinks PayPal’s stock is worth $290. It’s become surprisingly well diversified and if it can achieve a super-app for consumers it would be incredible. Its payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, Hyperwallet, and iZettle products.The Amazon partnership is bigger news than the stock price indicates. We saw what that did to Affirm’s stock. Affirm’s stock is up 177% in the last six months. PayPal needs to innovate boldly and acquire Pinterest and be more aggressive in how it grows.PayPal is preparing for an eBay-less future. Six years after the companies split apart, eBay is in the process of transitioning sellers off PayPal and onto its own payment system. It’s not entirely clear how that might impact PayPal’s future.In a market correction, I would consider buying some PayPal if it reached well below $150. It has that FANG quality of being so cash rich as to be a value and growth company together. Plus the company is not really a target for any short squeeze attempt, based on historical data of our short interest API.If it can prove it can innovate it will win more confidence from investors. It needs to do better with crypto features that can on-board new customers and create a unified app that consumers truly want to have as one of the few apps they use.