PayPal stock falls 25% as weak results bring rivals down, too

Posted: 3 February 2022 11:57 am
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The online payments company says consumers are increasingly reluctant to spend and lowers forecasts for the year.

Shares of PayPal (PYPL) closed down nearly 25% Wednesday, a day after the online payments provider reported worse-than-expected financial results for the fourth quarter and lowered forecasts for the full year 2021.
In an earnings call, the company suggested consumers are increasingly reluctant to spend with inflation up and the threat of Omicron. The stocks of rivals Square, now Block (SQ), and Affirm (AFRM) both fell 10% in sympathy.
PayPal is one of the latest stocks that soared during the stay-at-home days of the pandemic – shares rose from about $100 in early 2000 to over $300 last summer – to take a plunge, suggesting many investors are deciding to cash out and move on.

What PayPal said

PayPal reported its latest financial results Tuesday, with earnings per share coming in at $1.11, missing the $1.12 expected. The company did beat on revenue, posting $6.92 billion versus $6.89 billion expected.
Besides missing on earnings, PayPal said it expects first-quarter 2022 non-GAAP earnings per share of $0.87, compared to $1.22 for the same period last year. Analysts had been projecting $1.16.
The company’s full year 2022 revenue guidance also came in below estimates, with the company pointing to inflation pressures. PayPal said it expects revenue to grow roughly 15–17%. Analysts expected year-over-year revenue growth of 17.8%.
User growth fell short of expectations, due in part to 4.5 million “illegitimate” accounts that joined the platform, which it had to exclude from its count.
“This number is immaterial to our overall base of 426 million customer accounts, but it affected our ability to achieve our guidance in the quarter,” PayPal CFO John Rainey said during the company’s earnings call.
The company also walked back its ambitious user growth goals, saying that its focus would instead be on “sustainable growth and driving engagement.”
PayPal lowered its guidance for the year as well.

PayPal blames inflation and reduced consumer spending

While PayPal pointed to economic pressures, it’s worth noting that some finance companies have reported good results.
American Express (AXP) released its fourth quarter 2021 financial results last week, beating estimates on the top and bottom lines. Visa (V) reported last week net revenue of $7.10 billion for its fiscal first quarter 2022 ended December 31, 2021, beating Wall Street estimates of $6.79 billion. Mastercard (MA) also reported last week fourth-quarter 2021 revenue of $5.22 billion, up 27% year over year and beating analyst estimates of $5.17 billion.
So this could be a problem specific to PayPal.

Now what?

PayPal has had a consistent track record of earnings and sales growth, but it likely needs to resolve its guidance shortcomings to turn the stock around.
Analysts do give the stock a buy rating. Of the 44 analysts covering the stock, 32 call it a Strong Buy or Buy, compared to 12 Holds and no Sells. They see it hitting $254 over the next 12 months, a 92% premium over its current price.
Keep an eye on whether those forecasts change following this round of earnings.
At the time of publication, Matt Miczulski did not own shares of any equity mentioned in this story.

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