Not much is going right for PayPal (NASDAQ: PYPL) these days.
It’s losing market share to competitors like Apple. Its payment volume is shifting to lower-margin channels like Braintree, and it continues to lose customers, even as it competes in a growth industry: digital payments.
Investors were reminded of all of those problems when the fintech giant reported fourth-quarter earnings on Wednesday, and they didn’t like what they heard. PayPal stock was trading down 10% as of 2:26 p.m. ET for the week, according to data from S&P Global Market Intelligence.
PayPal tells investors to be patient
PayPal’s fourth-quarter results were mostly fine, but its guidance indicates that it’s going to take longer to fix the business and return to stable growth than investors had anticipated.
Revenue in the fourth quarter rose 9% to $8 billion, which easily topped estimates of $7.33 billion, though transaction margin dollars were flat at $3.7 billion on a year-over-year basis, indicating slower underlying growth. Total payment volume in the period was up 15% to $409.8 billion, though active accounts decreased 2% to 426 million as management said it continued to lose unengaged accounts.
On the bottom line, the company delivered solid growth with adjusted earnings per share up 19% to $1.48, ahead of the consensus of $1.27.
While those numbers were solid, the decline in active accounts showed weakness in the underlying business. Meanwhile, guidance sent investors heading for the exits.
PayPal forecast revenue growth of 6.5% in the first quarter but called for flat adjusted earnings-per-share growth in 2024 of $5.10. That guidance includes aggressive share buybacks and a recent round of layoffs.
New CEO Alex Chriss explained that 2024 would be an investment year and a transition year for the company as it invests in new initiatives and improves its core tech infrastructure, including taking steps to improve latency on its mobile app.
Can PayPal bounce back?
PayPal now trades at a price-to-earnings ratio of 11, meaning Wall Street takes an especially dim view of the company and its growth prospects. Fintech and digital payments are supposed to be a growth market, but PayPal is struggling to capitalize on the opportunity. Competition from Apple and others, and concerns that the business may have spread itself too thin after so many acquisitions, are clearly weighing on the stock.
Chriss deserves a year to try to reset the business, but it’s hard to be optimistic after so many quarters of disappointments.
