SKN | Barclays Downgrades PayPal to Underweight as Checkout Growth Slows and Competitive Pressures Intensify

Key Points:

• Barclays downgraded PayPal from Equal Weight to Underweight and reduced its price target from $56 to $53, citing slowing growth in the company’s core branded checkout business.
• Online Branded Checkout growth slowed to 1% on a currency-neutral basis, while PayPal’s fourth-quarter outlook points to growth of only 1% to 2%.
• Barclays questioned PayPal’s turnaround prospects, highlighting competition from Apple Pay and Shop Pay, changing e-commerce behavior, and reduced takeover expectations.

Barclays has lowered its assessment of PayPal Holdings, moving the stock to Underweight from Equal Weight and cutting its price target to $53 from $56. The downgrade reflects concerns that PayPal’s core branded checkout business is losing momentum, despite better-than-expected earnings per share and transaction margin dollars in the third quarter. For Barclays, the central issue is whether PayPal can restore sustainable growth in its most important transaction-profit engine amid intensifying competition and structural changes in digital commerce.

Barclays Identifies Weakness in PayPal’s Core Checkout Business

PayPal’s third-quarter results were mixed, according to analysts led by Nik Cremo. Revenue came in approximately 1% below market expectations, while lower expenses helped transaction margin dollars exceed expectations by about 2% and earnings per share outperform by approximately 11%.

However, Barclays placed greater emphasis on Online Branded Checkout, which generates most of PayPal’s transaction profit. Growth slowed to just 1% on a currency-neutral basis. PayPal’s fourth-quarter outlook of 1% to 2% growth reinforced the bank’s concerns about deceleration and potential market-share losses.

For Barclays, the distinction between expense-driven earnings outperformance and underlying business momentum is critical. Cost discipline can support near-term profitability, but it does not necessarily resolve weakness in a core revenue-generating activity.

Competition and Changing Payment Habits Challenge PayPal

Barclays expects transaction margin dollar growth to face pressure from take-rate compression and competition from Apple Pay and Shop Pay. The analysts also highlighted changes in online checkout behavior, including the declining use of manual-entry guest checkout and the shift toward mobile commerce.

The report cited a decline in manual-entry guest checkout from approximately 44% of Visa e-commerce transactions in 2019 to around 16% in 2025. Barclays also identified agentic commerce, in which AI systems may increasingly facilitate shopping and transactions, as a potential challenge to the traditional checkout-button model.

These trends raise questions about the long-term position of branded checkout services. PayPal’s ability to remain relevant will depend on how effectively it adapts its products to changing consumer preferences and merchant requirements.

Barclays Questions the Turnaround and Takeover Narrative

The bank expressed doubts about PayPal’s turnaround strategy, arguing that many initiatives overlap with measures the company has pursued for years without clear evidence of improvement. Barclays also considered takeover potential substantially reduced following reports that Stripe and Advent had withdrawn an offer.

PayPal, however, reaffirmed its target of more than $1.5 billion in run-rate cost savings and expects approximately $700 million exiting the fourth quarter. It also set medium-term targets for mid-single-digit transaction margin dollar growth and double-digit earnings-per-share growth. Barclays questioned the credibility of these targets, pointing to a previous branded total payment volume acceleration framework that was subsequently withdrawn.

What Investors Should Monitor Next

The key indicators are branded checkout growth, transaction margin performance, competitive market-share trends, and delivery against PayPal’s cost-saving and earnings targets. Barclays’ downgrade reflects its view that underlying fundamentals, rather than takeover expectations or cost reductions alone, will increasingly determine the company’s trajectory. Whether PayPal can demonstrate a sustained recovery in its core checkout business remains the central issue for future assessments.

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