(Bloomberg) -- Investors still harboring bullish hopes for PayPal Holdings Inc. are looking for a catalyst in the firm’s first earnings report under its new CEO on Wednesday afternoon.

Alex Chriss is tasked with arresting a slump in which the e commerce firm’s stock has fallen 28% this year, putting it on course for its third-straight annual drop. The decline has puzzled bulls who see value in the firm’s long-term potential as a payments leader.

Some are calling for a return to discipline after some ill-fated acquisitions under previous CEO Dan Schulman, including the $4 billion acquisition of online coupon site Honey that closed in 2020.

“If the CEO can get even more aggressive on that and just pound the table on the stock and say it’s a return to discipline, I think some people could get caught wrong-footed short here,” said Brian Frank, portfolio manager of the Frank Value Fund.

The stock’s rout from a record high of roughly $308 reached in 2021 has pushed PayPal’s valuation to an all-time low of 9.4 times expected earnings. That puts its valuation at just a slightly more expensive level than HP Inc. and cheaper than Comcast Corp.

Wall Street is mostly bullish on the stock — 56% of analysts covering it have a buy-equivalent rating, and their average price target of about $82 per share represents nearly 60% upside.

Still, the shares have struggled to gain as payment fee rates and transaction margins remain under pressure. After booming in the immediate aftermath of the pandemic, analysts are worried that payment companies won’t be able to regain the same traction they saw in previous years.

“The strong growth that PayPal saw in a couple quarters in 2020 and 2021 — I think there are significant concerns on the Street that they were just a kind of Covid pull forward and they’re going to have bit more of a hangover than people realize,” said David Klink, senior equity analyst at Huntington Private Bank.

Even Wall Street bulls think that a turnaround will likely take several quarters to achieve clarity for investors, putting further scrutiny on Chriss, who took over the top role at PayPal in September after 19 years at Intuit Inc.

“Ultimately, we believe PayPal needs to show indications of stabilizing or improving transaction margin economics for the stock to work,” Morgan Stanley analyst James Faucette wrote in a note.

“However, we are closely paying attention for strategic updates from the CEO around the path to improving margins, monetizing Venmo, and balancing investment needs with profitability,” he added, referencing the payment platform. 

Morgan Stanley has an overweight rating and $126 price target on shares of PayPal and thinks that e commerce growth can support re-rating of the stock, but still sees a challenging path ahead.

For bulls, PayPal’s aggressive buyback campaign remains a positive, particularly given the stock’s valuation. Frank sees support at this level, which he calls “breathtakingly cheap.”

PayPal expects to spend $5 billion on incremental share repurchases in 2023, nearly 10% of their current market capitalization, one of the highest portions of companies in the Nasdaq 100, according to data compiled by Bloomberg. At the end of the second quarter, PayPal had spent about $3 billion repurchasing its own shares.

The pace of buybacks shows that PayPal is putting its money where its mouth is, according to Frank.

“PayPal has been one of the most frustrating stocks but it’s also one I don’t lose a lot of sleep over, because there’s so much cash coming in and I really think it’s a great competitor” said Frank.

Tech Chart of the Day

The Nasdaq 100 Index fell 2.1% in October, extending losses for a third consecutive month. This is the tech-heavy benchmark’s longest streak of declines since June 2022, as investors react to high interest rates and a series of disappointing earnings. 

Top Tech Stories

  • Advanced Micro Devices Inc. said a new AI chip will generate $2 billion in sales next year, fueling optimism that demand for the component will offset a slump in orders for video-game equipment.
  • A Chinese court has ruled a Tesla Inc. vehicle wasn’t the cause of a 2022 accident that killed two people and injured three others, Shanghai Securities News reported.
  • Alphabet Inc. settled Match Group Inc.’s claims that Google Play policies are unlawful, resolving an antitrust complaint that endangered billions of dollars in revenue generated by the search engine’s app marketplace.
  • Southeast Asia’s internet economy will log its slowest growth on record this year, a group of researchers said, as they slashed near-term e-commerce spending estimates for the region by 13%.
  • Taiwan is investigating suspected bribes connected to Foxconn Technology Group founder Terry Gou’s presidential campaign, as the billionaire submits signatures to run in next year’s election.

Earnings Due Wednesday

  • Premarket
    • TE Connectivity
    • Silicon Labs
    • Extreme Networks
    • TTM Tech
    • CoreCard
    • Frontier
  • Postmarket
    • Qualcomm
    • Cognizant
    • Electronic Arts
    • Roku
    • Altice USA
    • Ansys
    • PTC Inc.
    • Tyler Tech
    • Super Micro Computer
    • Confluent
    • Procore Technologies
    • Qorvo
    • MicroStrategy
    • Informatica
    • Tenable
    • MKS Instruments
    • Clearwater Analytics
    • Avnet
    • Axcelis Technologies
    • DXC Technology
    • Rapid7
    • FormFactor
    • JFrog
    • SiTime
    • Fastly
    • Silicon Motion
    • Q2 Holdings
    • Zeta
    • Mirion Technologies
    • PC Connection
    • MeridianLink
    • SEMrush
    • Weave
    • 8x8
    • Faro Technologies
    • Eventbrite
    • Sinclair
    • MediaAlpha
    • QuinStreet
    • DHI Group

--With assistance from Tom Contiliano, Subrat Patnaik and Rheaa Rao.

(Updates stock moves at market open)

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