Dive Brief:

• Mizuho Securities analysts downgraded their rating on PayPal to “neutral” in a report Tuesday, citing “intensifying competition in e-commerce checkout” and specifically a challenge from tech giant Apple.
• Bank of America research analysts also maintained a “neutral” rating in a report Tuesday, calling it a “transition year” for PayPal following the appointment of a new chief executive officer and chief financial officer last year. A spokesperson for PayPal declined to comment on the reports.
• Both analyst teams expect PayPal to labor under intensifying competitive pressures, also from the banks’ Zelle payment option, payment company Block’s Cash App and buy now, pay later alternatives. 

Dive Insight:

PayPal updated its strategy following the appointment of Alex Chriss as CEO of the San Jose, California-based company last September, and he has built out a new management team since then, including adding Jamie Miller as the CFO in November.

Chriss has sought to improve profitable growth, developing a better approach to small and mid-sized business customers via a service launched before he arrived, called PayPal Complete Payments. That mission falls into his sweet spot with his experience at software company Intuit working with such clients before he landed at PayPal.

Still, the leadership transition comes as PayPal faces growing competition from a slew of digital payment options in the marketplace. In particular, Apple’s development of its iPhone Apple Pay tool has been infringing on PayPal’s growth prospects, said Mizuho analysts. “Our data suggests that market share loss to Apple Pay looks increasingly challenging,” the analysts said in their report, calling Apple’s service the “primary reason” for PayPal’s market share loss and citing data that shows e-commerce shifting away from PayPal.

“The iPhone has forced a shift from desktop (where PYPL has historically performed well) to mobile (where Apple is most prevalent and where PYPL’s checkout trends are weaker vs. desktop),” the Mizuho report said, using PayPal’s stock ticker symbol, “PYPL,” to refer to the company. In a survey of 250 consumers, the analysts also noted a preference for Apple Pay among younger consumers, and a tendency for older consumers to use PayPal.

“In our view, this signals that each incremental consumer that enters the e-comm checkout market is much more likely to choose Apple Pay over PYPL,” the Mizuho report said.

In 2013, PayPal absorbed Venmo, a peer-to-peer payment tool popular with younger consumers, when it acquired Braintree. It has tried to use Venmo to appeal to a new generation of purchasers for years, but it has grappled with growth generally and specifically in connecting that service with its larger PayPal offering. PayPal “has been struggling to monetize Venmo while momentum at Venmo appears to have slowed as other P2P platforms like Zelle have been gaining share,” the Mizuho report said.

Almost as if in response to the analyst reports, PayPal on Tuesday announced a one-off digital presentation from Chriss scheduled for Jan. 25, at which he will preview “first innovations PayPal and Venmo are piloting and bringing to market this year,” a press release said. That will come just a couple weeks before PayPal is scheduled to deliver its fourth-quarter earnings results on Feb. 7.

“Investors will be very focused on initial ’24 guidance as the new CEO/CFO seek to earn Street credibility while driving sustained improvements in top-line metrics, especially TP growth,” the Bank of America analyst report said.