Growth in payments subsidiary Braintree is hurting PayPal, according to Susquehanna. Analyst James Friedman downgraded the stock to neutral from positive, and lowered his price target, saying Braintree’s higher transaction expenses and lower gross yields will create yield and margin pressure for PayPal in 2023 and 2024. “Braintree is quickly gaining share within PYPL’s TPV, creating negative leverage from mix,” Friedman wrote in a Tuesday note, referring to total payment volume. “Piecing together intermittent disclosures, we estimate that Braintree accounted for 31% of PYPL’s TPV in 2021 and may reach 44% by 2023E, contributing roughly 72% of PYPL’s overall volume growth next year.” “As Braintree is likely to continue driving PYPL as a whole, its unit economics may drag on PYPL consolidated results,” Friedman added. Braintree’s estimated take rate is about 135-155 basis points, compared with PayPal’s average of approximately 350 basis points, according to the note. “Braintree’s lower net transaction yield and gaining volume share explain much of the decline in PYPL’s overall net transaction yields, and imply more stable yields within PayPal Core,” the note says. Shares of PayPal cratered this year as traders pivoted away from fintech stocks amid growing inflation and recession concerns. The stock is down nearly 50% this year, and roughly 66% off its 52-week high. Susquehanna’s price target of $100, down 13% from $115, is roughly in line with PayPal’s closing price of $95.03 on Monday. The stock was down 2.3% midday Tuesday. — CNBC’s Michael Bloom contributed to this report.
© heardonwallstreet.com