PayPal’s Record Drop Another Pandemic Boom-to-Bust Example

(Bloomberg) -- PayPal Holdings Inc. shares sank to almost the lowest level since the pandemic's onset, joining the likes of Peloton Interactive Inc. and Netflix Inc. in a post-earnings selloff.

These companies have given back most of their multi-fold gains as demand for their services during Covid-19 lockdowns and mobility restrictions have quickly come to an end. PayPal's December quarter numbers showed the same, prompting investors to dump the stock and hand losses of 23%, on track for the worst single-day loss on record.

Total payments volume climbed just 23% in the final three months of last year, the smallest increase in two years and fell short of analyst expectations. The results dragged down the share price of rival Block Inc., formerly Square Inc., by 8.2% and Affirm Holdings Inc. by 6.9%.

Other payments stocks including Marqeta Inc., Fiserv Inc., Paysafe Ltd. and Fidelity National Information Services Inc. may also be under pressure on Wednesday as investors question whether PayPal's rocky quarter is a signal of what's to come for the sector.

For PayPal, there's more to it than the overall slowdown in the industry: former parent EBay Inc. has begun to more rapidly move away from PayPal's platform in recent quarters.

“Clearly the market wants to understand how much eBay impacted these results, and whether the migration of the eBay business away from PayPal is larger than anticipated,” Neil Campling, an analyst at Mirabaud Securities, wrote in a note. “The eBay impact is certainly larger than what we see in consensus.”

Still, there's hope for a turnaround. Trading at 34 times forward earnings, PayPal is one of the least expensive stocks among payment peers, according to Bloomberg data.

“As investors rationalize expectations (and perhaps overreact to changes in strategies around some parts of the business like active account numbers), we think that tumult creates buying opportunity,” Morgan Stanley's James Faucette wrote in a note.