PayPal Holdings shocked Wall Street with guidance that badly missed views and new strategic objectives when it reported fourth-quarter earnings. PayPal stock plunged Wednesday.
San Jose, Calif.-based PayPal reported December-quarter earnings late Tuesday. Earnings and total payment volume came in below analyst estimates.
PayPal 2022 profit guidance and its outlook for customer growth missed as well. In addition, PayPal abandoned five-year financial targets.
PYPL stock plunged 24.6% to close at 132.57 on the stock market today.
PayPal expects to add 15 million to 20 million net new active monthly users in 2022, missing street estimates of 53 million.
In 2021, PayPal added 45.7 million active users organically. It ended the year with 426 million active users, up 13% from a year earlier.
Meanwhile, PayPal management surprised the Wall Street analysts with a new focus on the earnings call, said Lisa Ellis, analyst at MoffettNathanson in a report.
PYPL Stock: Competition Heats Up
"The shocker: management abruptly shifted its focus from driving user growth to driving ARPU (average revenue per user) growth, abandoned its 2025 goal of 750 million users, and will focus instead on increasing engagement among the on-third of PayPal users that drive the vast majority of the company's revenues," Ellis said.
PayPal has evolved from online checkout to mobile shopping and person-to-person payments. Competition has heated up with Block, formerly called Square, and others.
At Susquehanna, analyst James Friedman said: "PayPal is pivoting its strategy to focus more on engagement, but less on net new actives. The new approach sounds sensible to us as many of the new accounts proved less productive."
PayPal has aimed to develop a financial "super-App" for consumers. The digital wallet features buy now pay later, cryptocurrency trading, bill pay, shopping/rewards tools and savings accounts.
Barclays analyst Ramsey El-Assal said PayPal is pulling back on incentive-driven customer acquisition. Instead, it's focusing on gaining and cultivating higher-quality users. "The key discussion points over the coming weeks will likely be the achievability of medium-term guidance amid the strategy change, whether the strategy change was a response to competitive dynamics, and what the normalized growth profile of the company looks like," he added in a report.
PayPal earnings for the quarter ended Dec. 31 were $1.11 per share, up 4% from a year earlier. The e-commerce company said revenue rose 13% to $6.90 billion, including acquisitions.
PayPal Stock: 2022 Profit Guidance Misses
Analysts expected PayPal earnings of $1.12 a share on revenue of $6.90 billion. A year earlier, PayPal earned $1.08 a share on sales of $6.12 billion.
Total payment volume processed from merchant customers climbed 23% to $339.5 billion. Analysts had projected total payment volume of $345.40 billion.
For 2022, PayPal forecast earnings per share in a range of $4.60 to $4.75 per share, roughly 10% below Wall Street estimates. Analysts had predicted full-year earnings of $5.22 a share.
In addition, PayPal lowered its 2022 net revenue growth outlook to 16% at the midpoint of guidance vs. its 18% or better outlook issued in November, Jefferies analyst Trevor Williams said in a report to clients.
PayPal stock had retreated some 24% since its third-quarter earnings report. Former parent eBay, which spun off PayPal in 2015, is almost done shifting its payment processing from PayPal to Netherlands-based Adyen.
PYPL stock has pulled back from an all-time high of 310.16 on July 26. PayPal stock holds a Relative Strength Rating of only 19 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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