Summary: Digital payment providers have fallen out of favor with investors as a sector-wide sell off has carried over into the new year. PayPal recently lowered its expectations for both revenue and user growth in 2022, citing inflation and supply-chain disruptions on cross-border spending. Block, formerly Square, has seen its valuation slashed in half over the last few months on concerns regarding how sustainable the growth of the industry will be in a post-pandemic environment.
Adding fuel to the fire is the red-hot buy now, pay later (BNPL) space, which has been staggered by headwinds over the last few months. In Australia and the United Kingdom, governments are cracking down on the sector to avoid “potentially unfair and unclear” terms for consumers. BNPL adoption remains strong, yet concerns around rapid consumer debt accumulation could lead to further regulation and slower growth.
Related Stocks: PayPal Holdings, Inc. (PYPL), Block, Inc. (SQ), Affirm Holdings, Inc. (AFRM), Visa Inc. (V), Mastercard Incorporated (MA)
Digital Payment Stocks Continue to Slide
Digital payment providers, primarily PayPal and Block (formerly Square) have seen their valuations cut in half over the last few months amid a growing number of headwinds facing the industry.
PayPal (PYPL) stock is down more than 46% year-to-date and roughly 67% below its all-time high hit in July 2021. Similarly, Block (SQ) has fallen 40% year-to-date and is down more than 65% since hitting a peak last summer.
The sell-off comes after digital payment companies rocketed to new heights through 2020 and the first half of 2021 on the rise of e-commerce, demand for mobile payments and greater fintech investment. Yet, investors seem to believe that level of growth in unsustainable long-term.
PayPal recently reported fourth quarter earnings that fell short of analyst’s expectations and massively disappointed investors. According to Bloomberg, total payments volume in Q4 climbed 23%, the smallest increase in two years as economies reopened and consumers resumed in-store shopping.
MRP recently highlighted a slowdown in online sales, which have fallen from record highs brought upon by COVID-19 lockdowns and decreased foot traffic through 2020.
Bloomberg notes a key headwind facing digital payment companies is the fact online commerce’ share of retail is falling on supply-chain disruptions that are increasing shipping times. Not only that, but consumers may be more frugal as inflation surges.
PayPal boosted its revenue by 13% in the final three months of the year, which was also the smallest increase in the two years.
Expectations for 2022 don’t look much better either. Barron’s reports that PayPal expects to add 15 to 20 million net new active users this year, compared to 49 million in 2021, well below expectations of 53 million users.
Block, a top competitor to PayPal, is expected to…
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