PayPal stock closes down 24% in worst-ever trading day.
- PayPal's stock dropped on Wednesday after the company issued disappointing outlook, which it blamed in part on inflation.
- PayPal CEO Dan Schulman stated in an interview that the business is taking a "measured approach" to guidance, but that revenue will pick up in the second half of the year.
- PayPal also fell short of its user growth expectations, thanks to the addition of 4.5 million "illegitimate" accounts.
PayPal's stock dropped 24% on Wednesday, a day after the company provided disappointing outlook, which it blamed in part on inflation.
PayPal's fourth-quarter results were a mixed bag. Excluding adjustments, earnings per share of $1.11 fell short of the $1.12 forecast. According to Refinitiv, it surpassed revenue projections, reporting $6.92 billion versus $6.87 billion predicted.
However, it also stated that it expects non-GAAP earnings per share of 87 cents in the first quarter, compared to analysts' expectations of $1.16. On a spot and foreign currency-neutral basis, it forecasted revenue growth of 15 percent to 17 percent for the full year 2022. Analysts predicted sales increase of 17.9% year over year in 2022.
PayPal CEO Dan Schulman stated in an interview that the business is taking a "measured approach" to guidance, but that revenue will pick up in the second half of the year.
He cited obstacles such as eBay's shift to its own payments network, as well as "exogenous factors" such as inflation lowering consumer spending and supply chain concerns "disproportionately affecting" cross-border payments.
PayPal also fell short of its user growth expectations, owing in part to the addition of 4.5 million "illegitimate" accounts, which "impacted our ability to reach our guidance in the quarter," according to CFO John Rainey. The company also lowered its user growth targets, citing a "choice" to focus on "sustainable growth and fostering engagement," according to Rainey.
On Wednesday, Block, the fintech business formerly known as Square, also fell 10%. Affirm, a buy-now-pay-later business, was down 9%.
PayPal's issues are mostly "short-term headwinds," according to Canaccord Genuity Capital Markets analysts, who kept their buy recommendation on the company but dropped their price objective from $315 to $215 in a note Tuesday.
"While net new account growth is projected to slow in 2022, we are witnessing a consistent increase in user engagement metrics and expect to see more marketing behind increasing engagement in 2022," according to the Canaccord report. "And, despite its small, PYPL has already demonstrated its ability to seize rapidly emerging opportunities, such as scaling an exceptional Buy Now Pay Later (BNPL) service and launching stock trading."
Analysts are bullish on the previously disclosed Venmo-Amazon relationship, which they believe "may be the largest single catalyst for PYPL in 2022."
In a report released Tuesday, BTIG analysts claimed PayPal is now a "'show me' storey," downgrading the stock to neutral and removing their $270 price target. They identified "major shifts in the company's approach to client acquisition and engagement" as additional sources of "uncertainty." They also cited the company's remarks that the full-year projection was cautious owing to inflation and supply chain difficulties, which "provided a strong contrast with the more bullish yearly outlooks offered recently by the card networks," according to the analysts.