PayPal (NASDAQ: PYPL) is facing several challenges in today’s market landscape. It’s witnessing a loss of market share to competitors like Apple, while its payment volume is shifting towards lower-margin channels such as Braintree. Additionally, the company continues to experience a decline in its customer base, despite operating in a growing industry like digital payments.
These issues were highlighted when PayPal reported its fourth-quarter earnings on Wednesday, resulting in a negative response from investors. The stock price dropped by 10% for the week, reflecting concerns over the company’s performance.
Although PayPal’s fourth-quarter results were generally satisfactory, its guidance suggested that it would take longer than anticipated to address its challenges and achieve stable growth. While revenue for the quarter increased by 9% to $8 billion, transaction margin dollars remained flat year-over-year at $3.7 billion, indicating slower underlying growth. Although total payment volume rose by 15% to $409.8 billion, active accounts decreased by 2% to 426 million, signaling continued customer attrition.
On the positive side, adjusted earnings per share grew by 19% to $1.48, surpassing the consensus estimate. However, the decline in active accounts underscored weaknesses in the company’s core business. Moreover, the guidance provided by PayPal for the first quarter indicated a revenue growth rate of 6.5%, with flat adjusted earnings-per-share growth projected for 2024 at $5.10. This outlook includes aggressive share buybacks and recent layoffs.
The new CEO, Alex Chriss, acknowledged that 2024 would be an investment and transition year for the company, focusing on initiatives to enhance its core tech infrastructure and address latency issues on its mobile app.
Currently, PayPal trades at a price-to-earnings ratio of 11, reflecting skepticism from Wall Street regarding the company’s growth prospects. Despite the potential for growth in the fintech and digital payments sector, PayPal is struggling to capitalize on these opportunities. Competition from rivals like Apple, along with concerns about the company’s acquisition strategy, are contributing to investor pessimism.
While Chriss deserves time to reset the business, the company’s track record of disappointments in recent quarters makes it challenging to maintain optimism about its future prospects.