PayPal’s Strategic Pivot Meets Skeptical Market Sentiment

PayPal is pursuing a federal banking license, a move designed to diversify its business model and reduce external dependencies. However, this long-term strategic play is being overshadowed by immediate concerns, as a wave of analyst downgrades reflects growing doubts about the momentum of its core operations. This clash between future ambition and present challenges is applying significant pressure to the company's share price.

A series of downgrades from prominent Wall Street firms has catalyzed recent weakness in the stock. Bank of America shifted its rating from "Buy" to "Neutral," simultaneously slashing its price target substantially from $93 to $68. Analysts at Baird followed suit, reducing their assessment from "Outperform" to "Neutral."

The core issue centers on a deceleration in key business metrics:
* Market experts anticipate "mixed" transaction volumes for the fourth quarter of 2025.
* A particular area of concern is the "branded checkout" segment, a high-margin business. CFO Jamie Miller indicated a noticeable slowdown, projecting growth of just 2% (currency-adjusted) for the closing quarter, down from 5% in Q3.
* Maintaining the most bearish stance, Compass Point reiterated its "Sell" rating and lowered its price target to $56, currently the lowest among cited analyst views.

This collective action has shifted the prevailing analyst mood firmly toward "Hold." The market is primarily pricing in the risk of structural headwinds forming in PayPal's central business, especially as its flagship checkout service loses steam.

Financial Metrics and Technical Position

The stock market is reflecting this uncertainty through persistent underperformance. Shares closed yesterday at €51.28, marking a decline of approximately 39% since the start of the year. The equity is trading below its 50, 100, and 200-day moving averages, and a Relative Strength Index (RSI) reading of 70.5 signals a technically overbought condition following recent moves.

Should investors sell immediately? Or is it worth buying PayPal?

In a relative performance comparison, PayPal is trailing both the broader business services sector and the S&P 500. Investor focus remains fixed on determining whether the transaction volume slowdown is a temporary setback or a trend that will extend into the new fiscal year.

The Banking License Initiative

Concurrently, PayPal is advancing a significant strategic shift. The company has formally submitted applications with Utah's financial regulator and the FDIC to establish "PayPal Bank."

Securing this industrial loan company charter would provide several strategic advantages:
1. The ability to extend credit directly to small and medium-sized merchants, bypassing partner banks.
2. The capacity to hold FDIC-insured deposits, potentially leading to lower refinancing costs.
3. Greater independence from third-party banks and enhanced control over its own financial ecosystem.

While this move could improve margins and open new revenue streams in the medium term, near-term worries about growth deceleration are currently dominating the narrative. For instance, Bernstein maintains a "Market Perform" rating with a $76 price target, noting that while the banking license is a positive development, it does not immediately resolve the weaker trends in the branded business.

The Road Ahead

The next critical test will arrive with the quarterly earnings report in February 2026. Management will need to demonstrate whether forecasts for merely 2% growth in branded checkout are accurate or if corrective measures are taking effect. Simultaneously, the market will listen closely for details on how concretely and quickly the proposed "PayPal Bank" can contribute to financial results. The tension between a softening core business and a strategic transformation will therefore remain the central narrative for PayPal's stock in the coming months.