Shares of PayPal closed down 24% on Wednesday (Feb. 2), a day after the payment service reported weaker than expected fourth quarter earnings and provided disappointing guidance that it blamed in part on inflation.
Adjusted earnings increased by 4% to $1.11 a share, ex-items, but just missed Wall Street’s target of $1.12 a share, according to a Refinitiv survey of analysts. Revenue rose by 13% to $6.92 billion from a year ago, vs. $6.87 billion expected, according to Refinitiv.
For 2022, Paypal now sees full-year revenue growth of 15% to 17%, lower than the California-based company’s projection of 18% issued in November.
“The persistence of inflationary effects on personal consumption, labor shortages, supply chain issues, and weaker consumer sentiment have led us to adopt a more cautious outlook,” CFO John Rainey said on an earnings call according to a transcript.
“First, the more muted into the year for e-commerce growth driven by both supply chain challenges, as well as pullback in spending by lower-income consumers affected consumer growth. Second, in the back half of the quarter, we also changed course on some of our customer acquisition strategies, including incentive-led campaigns. And lastly and most impactful to the quarter, there were certain accounts that we disqualified or excluded from our net new active number.,” Rainey added.
The ongoing migration of eBay to its own payments platform and away from PayPal is another issue. Ebay acquired PayPal twenty years ago to handle payments for its website. In 2015, the two companies split and the dot-com-era tech giant has been slowly transitioning to its own payment system, and off from PayPal.
“We’ve got the eBay transition to work our way through. This transition is hiding some of the underlying strength of the business,” Schulman told CNBC, adding that eBay put $1.4 billion of revenue pressure on the company last year, and should be closer to $600 million this year. By the third quarter, PayPal won’t have to adjust results for eBay.
Paypal dropped as much as 27% to $129.01, hitting their lowest price since May 2020 and close at $132.57, erasing about $50 billion in market value.
The gloomy tone of the company’s macroeconomic outlook stood in contrast to the upbeat guidance about 2022 from card networks.