PayPal stock down 55% just attracted an activist investor

PayPal Holdings Inc (NASDAQ: PYPL) stock ended nearly 13% up on Wednesday after the Wall Street Journal said Elliott Management has a stake in the payments company.

Why is the activist targeting PayPal stock?

Neither PayPal nor the activist investor has made a comment on the report so far. What Elliott wants with the California-based fintech, therefore, is not yet clear.

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Nonetheless, experts speculate the activist will push for cost cuts and, of course, greater return to the shareholders. According to Darrin Peller – Senior Analyst at Wolfe Research:

PayPal’s marketing spend and M&A integration costs can be more efficient. With it having relatively low leverage as of 1Q22, we believe an activist could also propose more share buybacks, utilising a more efficient capital structure.

PayPal to report its Q2 results next week

The stock market news comes a week before PayPal is scheduled to report its Q2 results. Consensus is for it to earn 86 cents a share (down 25% YoY) this quarter on $6.8 billion (up 9% YoY) in revenue.

PYPL was a “darling” over the past two years as the pandemic accelerated the shift to online shopping. This year, though, shares are down more than 50% since the COVID restrictions have been removed.

Wall Street currently has a consensus “overweight” rating on the PayPal stock as it’s trading at only 19 times forward earnings versus its five-year average of 36 times.

Earlier this month, Elliott Management also took a 9.0% stake in Pinterest that PayPal was once rumoured to be considering buying; raising suspicion that there might just be some link there.