PayPal starts off the new year with another downgrade
Near the end of last year, Wall Street began to turn bearish on PayPal Holdings (PYPL), with shares of its stock suffering three downgrades in the month of December alone.
On the surface, the succession of downgrades seemed curious since the company had not suffered any significant setbacks. In fact, the company had actually scored some recent victories, like forging new deals in the massive business of college sports in the United States and implementing agentic AI into its services
Its subsidiary Venmo has also now entered the mortgage space.
But analysts seem to increasingly share a similar take on PayPal's stock: While PayPal took steps in 2025 to ensure growth, the gains are not going to be realized immediately.
On Monday, Monness, Crespi, Hardt analyst Gus Gala became the latest to downgrade PayPal shares, updating his Buy rating to Neutral, while noting that "long-term potential remains, but near-term optimism has faded."
Although Gala joins other Wall Street analysts in maintaining confidence about PayPal's trajectory, he also claims that the company is demonstrating an "overreliance on quick wins vs. durable advantage."
In a client note, Gala indicated that the firm sees the "long-term bull case still in play," but pointed to "less than promising" intra-quarter comments and "elongated ramps." He believes that the current estimates for PayPal's stock in 2026 are "too high" and are not fully adjusted to reflect current pressures.
But central to Gala's near-term pessimism is the growing weakness in PayPal's core consumer market.
"On the macro level we believe building weakness in 90% of consumers in the US which comprise 50% of spend" leaves the stock with "more compelling entry points likely on the horizon," he said.
"Lesson learned is we should have taken profit when stock rose on 'low hanging fruit' like stimulating Venmo monetization," Gala said. Another "low hanging fruit" fix that PayPal took was resetting the price-to-value paradigm with its payment service provider (PSP) business in 2024 and 2025, Gala added.
He also pointed out that the erosion of PayPal's moat has slowed considerably since Alex Chriss was named president and CEO in 2023, but that it also hasn't shown any meaningful expansion.
PayPal's stock has fallen 32.3% over the past 12 months.
Meanwhile, PayPal recently announced that it has submitted applications to the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation to establish PayPal Bank, which is a proposed Utah-chartered industrial loan company.
PayPal said that launching the bank will allow it to more efficiently provide lending solutions to small businesses in the United States, while also reducing the reliance on third parties.
"Securing capital remains a significant hurdle for small businesses striving to grow and scale," Chriss said in a statement. "Establishing PayPal Bank will strengthen our business and improve our efficiency, enabling us to better support small business growth and economic opportunities across the US."
In addition to small-business lending solutions, PayPal Bank will also offer interest-bearing savings accounts to customers.
PayPal named Mara McNeil president of the bank. McNeil previously served as president and CEO of Toyota Financial Savings Bank.