PayPal (PYPL) shares plunged to a 20-month low Wednesday after the group cautioned that eBay's (EBAY) decision to go with an in-house system payments system would carve more than $600 million from its near-term revenue forecast.
PayPal posted a set of fourth quarter earnings figures that were largely in-line with TheStreet, as revenues rose 13% to $6.9 billion over the three months ending in December, generating a bottom line of $1.11 per share, a tally that just a penny shy of the consensus estimate.
The group processed $340 billion in payments over the quarter, up 25% from last year, while adding 9.8 million new active accounts.
PayPal's 2022 forecasts were also affected by a strategy shift that will focus on customer engagement over account growth, a move that could improve margins by concentrating on higher-end users but is likely to result in much slower-than-expected net new account growth.
"eBay's migration to managed payments happened faster than we anticipated. Overall, eBay put $1.4 billion of pressure on our top line, reducing our revenue growth by 700 basis points," CEO Dan Schulman told investors on a conference call late Tuesday.
"2022 is going to be a year of transformation and investment as we transition from outsized growth driven by lockdowns during the pandemic and finalize the lapping of eBay's managed payments transition," he added. "eBay's transition will put an incremental $600 million of pressure on our top line ... in the second half of the year, I look forward to being able to stop adjusting for eBay and letting the strength of our core results speak for themselves."
PayPal shares were marked 26% lower in mid-morning trading to change hands at $130.05 each, the lowest since the pandemic trough of early May 2020.
"PayPal was one of the pandemic's biggest beneficiaries, but now faces brutal comps amid a painful customer loss (eBay)," said D.A. Davidson analyst Christopher Brendler, who maintained his 'buy' rating, while slashing his price target by nearly 40% to $166 per share, following last night's earnings release.
"While the dramatic fall from grace is unnerving, we take solace in several key positives beneath the surface that suggest better trends ahead," he added. "Although we understand the temptation to give up, we continue to view PayPal as a long-term winner in an attractive sector."
