Investors sold PayPal in their droves in overnight US trading after the company spooked equity markets with a warning about consumer spending patterns.
Shares in the digital payment platform fell nearly 17% in after-hours trading following its ‘more cautious’ forecasts for growth. Pre-market trading anticipates a 2% recovery when Wall Street opens later today, which would see the stock start trading at $175.80, 43% below its 12-month high.
PayPal is feeling the pinch as consumers pull back on spending as inflation really starts to rip through household budgets, an issue naturally hitting hardest on lower income bracket budgets.
BIGGER EWALLETS
PayPal now plans to switch its user growth strategy to what it sees as ‘higher value’ users that are likely to spend more cash and more frequently across the platform. Past incentives to get lapsed users to re-engage with PayPal have largely failed to generate sustained increased spending and drive PayPal revenues and returns.
‘Our view is spending money on lower-value net-new active users that are not engaged in the base becomes an increasingly expensive proposition over time and does nothing for our revenue growth,’ said Dan Schulman, PayPal’s chief executive. ” he said.
That will reduce its growth outlook in net-new-active accounts, something that investors are clearly worried about.
Growth investors might argue that these are short-term nuances that will benefit the company over time and mean better shareholder returns down the line. But the current climate is clearly making it difficult to put long-term benefits ahead of short-term knocks to growth expectations that are already priced in.
MORE TRENDS TRACKING
PayPal’s plans to start providing metrics on average revenue per user, or ARPU as it is generally referred to, will help show how user trends are impacting the financials.
The company’s fourth quarter to 31 December 2021 was largely as expected with earnings per share of $1.11 on $6.92 billion revenues roughly matching estimates of $1.12 and $6.89 billion respectively.
But the steer for 2022 was lower, the company pitching earnings of between $4.60 and $4.75 a share versus forecasts for $5.25. The company also projects first-quarter adjusted earnings per share of about $0.87 compared to the $1.16 consensus, according to FactSet data.
