Investing.com -- Bernstein analysts downgraded PayPal (NASDAQ:PYPL) Market-Perform from Outperform in a note Thursday, citing concerns over rising competitive pressures and uncertainty around the company's long-term growth trajectory.
The firm raised its price target for the stock to $80 from $75 but noted that PayPal's recent share price performance leaves limited upside potential.
"We tactically upgraded the stock at the end of July due to better product velocity and execution under new management," said Bernstein. However, despite improvements in product execution and attractive valuation, Bernstein highlighted the "push/pull dynamics" PayPal is facing.
These include intense competition on its core "cash-cow" button and potential tailwinds from buybacks, operational expenditure cuts, and monetization initiatives.
Bernstein remains "worried about competitive pressures on the cash-cow core button," which is still seen as "richly priced" compared to peers.
Additionally, the company's newer efforts, such as the "PayPal Everywhere" campaign to promote rewards on PayPal cards, have yet to show a significant impact on consumer preferences or gross profit, according to Bernstein.
Venmo, a key part of PayPal's portfolio, is also experiencing "share losses in P2P" (peer-to-peer) transactions, while Braintree's recent pricing changes have added further uncertainty around its future growth.
Though investor enthusiasm has grown around PayPal's Fastlane initiative, with partnerships like Adyen (AS:ADYEN) and Fiserv (NYSE:FI), Bernstein warns that "Fastlane development will take multiple years to play out," and the eventual financial impact may not meet bullish expectations.
Finally, the firm said it is concerned over potential negative revisions to PayPal's gross profit due to its exposure to fluctuating interest rates, which could present a headwind to growth in 2025.
Bernstein is stepping to the sidelines for PayPal, citing the "wider-than-usual range of long-term outcomes" for the company amid the competitive and market pressures.