Michael Burry Bets On PayPal As X Money Threat Looms — Sees Mispricing Opportunity

PayPal stock jumped over 12% in the past week after Big Short's Michael Burry disclosed opening a 3.5% position in the payments giant amid growing chatter about activist involvement and competition from X Money.

Burry, who is known for making a winning bet against the US housing industry during the 2008 crisis, prioritises market mechanics over the near-term business landscape. He thinks that a sell-off in software stocks due to pressure on the private credit market has led to mispricing for PayPal. Burry forecast a potential annual return of more than 15%.

Burry's prediction comes despite Elon Musk's X platform posing a direct risk to PayPal's core business. Mizuho Bank recently downgraded the stock to 'neutral,' citing the risk posed by the planned super-app called X Money, which will initially target up to 600 million users.

The disruption risk is reflected in Goldman Sachs reiterating its 'sell' rating on PayPal with a $41 per share price target, while Wells Fargo had an 'equalweight' rating with a 12-month stock price target of $48 apiece.

Elsewhere, PayPal faces legal challenges as the deadline in a securities class action lawsuit is scheduled this week. The company is also navigating the departure of its CEO in February after weak quarterly results and lower financial guidance. Although institutional investors hold about 68% of shares, they have recently been trimming their positions.

Activist Buzz Amid PayPal Stablecoin Traction

Analysts have observed unusual activity in regulatory filings from SocGen's brokerage arm, SG Americas, which could be acting as a swap intermediary. This could imply that institutional activists could be building positions behind the scenes.

Elsewhere, the company's stablecoin, PYUSD, is witnessing meteoric growth as its market cap grew fivefold in a year to $4.1 billion. The stablecoin is available across 70 global markets, expediting merchant settlement times to minutes from days while enabling the development of application-specific stablecoins using PYUSD reserves. Furthermore, PYUSD's combination with decentralised finance protocols on the Solana blockchain continues to drive liquidity and monthly supply.

However, note that the PayPal stock is still down nearly 13% year-to-date, which has lowered company valuation and subsequently the price-to-earnings ratio to under nine. Lower P/E ratio for a solid business could offer an attractive entry point for investors.

The company is working to support the stock price with capital returns, including a $6 billion stock repurchase programme. Burry's bet, PYUSD's growth, activist buzz, and the upcoming quarterly reports on 5th May to be presented by new CEO Enrique Lores are some of the factors that will most likely determine the course of the stock price for the remainder of this year.

If management delivers robust results and guidance, it could help improve the growingly optimistic market sentiment and sustain the recent stock rally. As of now, the market is weighing Burry's bet and activist rumours against stiff competition and the company's legal hurdles.

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