PayPal Cuts Annual Forecast as Spending Growth Continues to Slow

(Bloomberg) -- PayPal Holdings Inc.’s vow to rein in costs and push to boost profits cheered investors even after executives lowered targets for the firm’s performance this year. 

The payments giant said it would focus on simplifying operations as it warned that it now expects revenue for the year to only climb as much as 13%, compared with an earlier target of up to 17%. The move came after revenue for the first three months of the year climbed 8% to $6.5 billion, beating the $6.4 billion average of analyst estimates compiled by Bloomberg.

“The company cut 2022 revenue and earnings-per-share outlook as had been feared by many,” Sanjay Sakhrani, an analyst at Keefe Bruyette & Woods, said in a note to clients. “It seems investors feared even worse than what has been offered.” 

The shares rose 4.2% to $86.11 at 6:20 p.m. in extended New York trading following PayPal’s announcement of first-quarter results. 

PayPal has faced a myriad of headwinds in recent quarters: Its former parent company EBay has been rapidly moving payments away from its platform and more consumers are returning to in-store shopping. The company’s also contending with supply-chain dislocations affecting e-commerce shopping and once-in-a-generation levels of inflation in the U.S.

Investors, in turn, have punished PayPal’s stock, shaving $180 billion off its market value as the stock slumped 65% in the last six months. 

“Our shareholders expect more from us than our track record over the past several quarters has delivered and I take full accountability for that,” Chief Executive Officer Dan Schulman said Wednesday on a conference call with analysts. “We need to do better.” 

In February, PayPal said it was pivoting away from a previous strategy of trying to add millions of new users. Instead, it is seeking to encourage existing customers to use its app more frequently. Weeks later, PayPal was dealt another challenge when Chief Financial Officer John Rainey announced he’s leaving to join Walmart Inc. as the retailer’s CFO.

Still, there were signs the new strategy appears to be working: Transactions per active account jumped 11% in the quarter to 47. Schulman warned, though, that the company will likely see higher turnover of customers this year as it focuses on more-engaged users. 

“We know this year our churn rate will be somewhat higher because we’re letting these low-engaged consumers churn off the platform because the ROI to keep them isn’t worth it,” Schulman said.

Spending on PayPal’s platforms climbed just 15% in the first quarter to $323 billion. While that was in line with the average of analyst estimates compiled by Bloomberg, it was the smallest increase in at least five years. 

The company now expects total payments volume for the year to climb by 15% to 17%, compared with an earlier range of 21% to 23%, according to a statement Wednesday. Looking further ahead, PayPal is now abandoning its medium-term guidance, Schulman said. 

“The macro environment has deteriorated: Russia, Ukraine, and China are contributing to increased global uncertainty and incremental inflationary and supply-chain pressures,” Schulman said. “Forecasting normalized consumer e-commerce spending as we come out of the pandemic is exceedingly complex. As a result, we believe it is prudent to lower our 2022 guidance and reevaluate our medium-term outlook.”

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