PayPal Tumbles After Cutting Full-Year Sales, Profit Forecasts

(Bloomberg) -- PayPal Holdings Inc. shares dropped the most in more than a year after volume from former parent EBay Inc. tumbled and the payments giant lowered its guidance for revenue and earnings.

Transactions tied to EBay’s marketplace slid 45% in the third quarter, a bigger decline than in the previous three months, PayPal said in a statement. PayPal has been battling the loss of EBay ever since the two decided to end their longtime partnership in 2018.

Chief Executive Officer Dan Schulman called EBay’s impact on results a temporary problem, and he pointed to a new agreement with Amazon.com Inc. as more indicative of PayPal’s fortunes going forward.

“EBay results are like a pig through the python right now,” Schulman said Monday after results were released. Teaming up with major e-commerce firms such as Amazon “are of a much more permanent nature.” 

PayPal said it had inked a deal with Amazon to allow the firm’s Venmo wallets in the U.S. to be accepted on Amazon’s website and mobile app starting next year.

Shares of the San Jose, California-based company dropped 9.2% to $208.25, the biggest intraday decline since Sept. 4, 2020. They’re down 11% this year. 

The EBay effect weighed on overall payments volume, which climbed just 26% to $310 billion, a smaller increase than analysts predicted. 

PayPal now expects revenue to climb just 18% to $25.3 billion to $25.4 billion for the year. The company had previously forecast a 20% jump. Total payments volume is now expected to increase by as much as 34% while adjusted earnings per share is forecast to rise 19% to $4.60. 

Schulman said in an interview that the Amazon deal is “an incredibly meaningful part of Venmo’s monetization journey.” The deal was the result of PayPal “no longer having the restrictions of the EBay operating agreement,” Schulman said. “That enabled us to reach this agreement with Amazon.”

‘Strength to Strength’

Venmo is on track to deliver the $900 million in revenue PayPal has previously promised, the CEO said. The firm also believes Venmo’s transaction margin -- a measure of the wallet’s profitability -- will be positive this year, he said. 

“Venmo is moving from strength to strength,” Schulman said. “Pay with Venmo is probably going to be the biggest revenue source going forward.”

PayPal stood by its previous forecast for adding net new users to its many platforms, saying that figure should climb by approximately 55 million for the year. 

The company has previously said it hopes to become the next global super app, or a digital ecosystem that blends social media, commerce and banking. In the third quarter, PayPal added a high-yield savings account and shopping features as part of its push to get users to spend more time in its app. 

PayPal announced during the period that it isn’t pursuing an acquisition of Pinterest Inc., ending days of speculation over a potential $45 billion deal between the two companies. With Pinterest’s visual-search and scrapbooking platform, PayPal could have gained more data about the products consumers are buying.

“Even though PayPal disavowed the deal within a couple of days, the damage was done, as the false start with Pinterest introduced unexpected uncertainty into PayPal’s business outlook,” analysts at Moffettnathanson led by Lisa Ellis said in a note.

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