PayPal's turnaround plan faces challenges from competition, analysts say
Analysts flag long-term challenges but cheer upbeat Q2
Wall Street sees Apple Pay as a looming risk
At least 13 brokerages raise price targets, two upgrade
Stock rises 3% in mid-day trading on Wednesday
Adds stock moves, details of ratings and PT hikes in paragraphs 13-17
By Niket Nishant and Manya Saini
July 31 (Reuters) -As PayPal PYPL.O embarks on an ambitious turnaround strategy to revitalize growth after a post-pandemic slump, Wall Street analysts expressed some caution over competition from Big Tech and beyond.
The concerns highlight the challenges to the profit margins of the company, which for years enjoyed the first-mover advantage in the digital payments industry but has ceded market share more recently to newer entrants.
Technology behemoths such as Apple AAPL.O and Alphabet's Google GOOGL.O have taken some share in mobile payments, according to analysts.
Apple is a bigger threat. Andrew Jeffrey, analyst at brokerage William Blair, said Apple Pay is "increasingly ubiquitous". The company has also partnered with Affirm AFRM.O for its 'buy now, pay later' service.
"We are guarded on (PayPal's) ability to drive meaningful card present and Venmo monetization, particularly given the rise of competing contactless payments and Apple Pay," Jeffrey said.
Venmo is PayPal's peer-to-peer payments platform.
PayPal shares have gained 4.2% so far this year, trailing the benchmark S&P 500 index's .SPX nearly 14% gain.
While executives acknowledged rising competition on a call with analysts, CEO Alex Chriss said it had not lost any market share in desktop or web-based checkout.
Its dominance could, however, be challenged by physical card issuers such as Mastercard MA.N, which is aiming to phase out the manual card entry requirement for online payments in Europe by 2030 and potentially erode the edge digital firms have enjoyed.
"While this initiative is long-dated, it reinforces the fact that competition for PayPal's core checkout button could continue to intensify," analysts at BofA Global Research wrote in a note.
NEAR-TERM OPTIMISM
Even amid threats of competition, the stellar beat-and-raise second quarter eased investors' concerns in the near term.
Shares in the payments firm rose 3% in mid-day trading on Wednesday after at least 13 prominent Wall Street brokerages increased their price targets, while two raised their ratings.
Argus Research hiked PayPal's rating to 'buy'. Bernstein upgraded the stock to 'outperform' for the first time since 2021.
"We are encouraged by improved product momentum and overall execution under the new management team," Bernstein said.
"We believe this can help PayPal sustain gross profit growth at mid-single-digit levels despite competitive pressures, which we continue to worry about."
PayPal shares miss 2024's broader market rally https://reut.rs/3Yup0UX
Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Krishna Chandra Eluri
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