The financial-technology category is “better positioned” than many other pockets of tech to post a strong 2023, according to an analyst, but some names could fare better than others.

As SMBC Nikko Securities America analyst Andrew Bauch upgraded shares of Lightspeed Commerce Inc.

and Marqeta Inc.
Wednesday, he also downgraded shares of PayPal Holdings Inc.
and now has a bearish stance on that stock. Bauch worries about PayPal’s vulnerability to market-share losses for its branded checkout business.

“Few names in our coverage carry as much baggage as we enter the new year,” Bauch wrote of PayPal as he lowered his rating on the stock to underperform from neutral.

Bauch had made the reverse change on that name last summer, reasoning that activists at Elliott Management would help drive margin improvement at PayPal that would be well received by Wall Street.

“We continue to believe that pulling back significantly on investment will
erode PYPL’s [long-term] growth prospects,” he said.

PayPal shares declined 3.6% in Wednesday’s session.

Bauch is more upbeat about Lightspeed, upgrading shares of the payment technology company to outperform from neutral in his latest note. He acknowledged that some investors might see the move as a “leap of faith,” but in his view, the “once-beloved payments story can find new life in 2023.”

Despite Bauch’s caution about the upcoming quarterly report he expects that “management has enough talking points at its disposal to build optimism for the years ahead.”

He also moved to a neutral stance on Marqeta, whereas he previously rated the stock at underperform.

“Importantly, we see a reasonable possibility that two of the largest overhangs in the story are alleviated in the near-term,” Bauch wrote, referring to the renegotiation of the card-issuing company’s operating agreement with Block Inc. and the appointment of the company’s next chief executive.

Bauch’s top picks in the sector are Flywire Corp.
Paymentus Holdings Inc.
Shopify Inc.
and Toast Inc.
all of which he rates at overweight.