PayPal shares plunge after warning of weaker growth

[ad_1]

PayPal shares tumbled more than a quarter in early trading on Wednesday after the company alert that inflation, supply chain pressures and weakening ecommerce figures would hit its expected growth rate this year.

The US payments company, which had received a boom in new users during the pandemic, also revealed that many of its new accounts had failed to generate any meaningful business. PayPal slashed its forecasts for user numbers and said it would pivot to focusing on more active, higher-value customers.

Shares fell as much as 26.6 per cent to a 21-month low of $129.01 shortly after Wall Street’s opening bell. The move wiped almost $55bn from PayPal’s market capitalisation, which had stood at more than $205bn before the release of quarterly results late on Tuesday.

Worries about a slide in payment volumes as economic conditions, worsening have also hit other payment providers, with rival Block, formerly known as Square, down more than 12 per cent early on Wednesday.

PayPal management pointed to several factors that had started to dent payment volumes. These included supply chain problems that were eating into cross-border transaction volumes, reductions in travel and events because of rising coronavirus cases, the elimination of government stimulus and inflation.

The fall-off was being particularly felt among “lower-income cohorts”, John Rainey, chief financial officer, said during an earnings call on Tuesday afternoon.

Rainey also revealed that PayPal was abandoning its medium-term target of reaching 750m users after finding that many of the 120m new customers added over the two years of the pandemic had failed to actively use the service.

The company was instead turning its focus to encouraging its more active users to raise their spending levels, making it likely that many of the people drawn to the service during the pandemic would fall away.

The company’s fourth-quarter results also took a hit from a botched incentive campaign. PayPal last year began offering a referral bonus of as much as $10 to existing users for signing up a friend without an account, but Rainey said the company identified 4.5mn accounts it believed were created illegitimately. The number was “immaterial” to PayPal’s overall base of 426mn customer accounts but “affected our ability to achieve our guidance” in the fourth quarter, he said.

The company forecast that revenue would grow about 15 per cent to 17 per cent in the 2022 financial year, below the forecast of 18 per cent it gave three months ago. PayPal said it expected to report earnings of $2.97 to $3.15 a share in 2022, compared with $3.52 in 2021 and well below the $3.68 a share that had been pencilled in by analysts.

The revised guidance was likely to cause a “credibility gap” for PayPal’s management in the near term, but did not alter the core underlying growth trends that should help the company in the medium and longer term, said Colin Sebastian, an analyst at Baird.

In the fourth quarter, PayPal reported a 13.1 per cent year-on-year increase in revenue to $6.92bn, topping Wall Street estimates by about $53mn. Earnings of 68 cents a share were down from $1.32 a year earlier and missed forecasts by 10 cents.

It is the second consecutive quarter that PayPal has reined in its forecasts, having dialed back its 2021 revenue projection in early November.

[ad_2]