PayPal's stock has declined more than 50% over the last year, but it got a bump on Wednesday following news that the company is tightening its belt and collaborating with an activist investment firm that took a $2 billion stake in the firm.
The company is embarking on a "transformation" to regain momentum, CEO Dan Schulman told analysts on the company's earnings call. PayPal saw
PayPal's revenue rose 9% during the second quarter from a year earlier, while the company reported a net loss of $341 million during the quarter compared with a profit of $1.18 billion a year earlier. PayPal reduced its revenue growth forecast for the full year to 11% from a range of 11% to 13%.
PayPal will begin its overhaul by retooling products and cutting costs under a new chief financial officer, Schulman said.
Effective immediately, Blake Jorgenson becomes PayPal's new CFO, after serving for several years at the video game company Electronic Arts. He replaces John Rainey, who left PayPal a few months ago to become CFO at Walmart. Senior vice president of investor relations Gabrielle Rabinovich, who served as PayPal's interim CFO, is adding the title of treasurer.
PayPal plans at least $900 million in cost savings this year by reducing its real estate footprint and shifting new hires to "lower-cost geographies," aiming for flat operating costs going into next year, Schulman said.
PayPal is "completely aligned" with the activist investor Elliott Management and its ideas for other operational improvements and revenue growth, Schulman told analysts when addressing the firm's $2 billion stake in PayPal. PayPal's past with activist investors includes
Elliott Management last month also emerged the largest investor in Pinterest, which recently hired ex-PayPal executive Bill Ready as its CEO. PayPal last year briefly explored — then abandoned — plans to acquire Pinterest.
PayPal said it processed $4.9 billion in buy now/pay later loans during the second quarter, with volume up 226% from a year earlier. More than 22 million consumers have used its Buy in 4 installment loan product, which PayPal recently expanded to include a pay-monthly option to spread payments over longer terms. Schulman noted that unlike other BNPL providers, PayPal charges merchants no fees for its service and consumers pay no late fees.
"The profit pool for us in [these loans] is not inherent within buy now/pay later but in checkout and in our [transaction] take rate," Schulman said.
The "super app," which incorporates shopping, savings and other offerings, was well received by PayPal's users, but inflation and supply chain issues are likely to weigh on spending through the first half of this year, CEO Dan Schulman said.
Other product changes PayPal is contemplating to spur user growth could blur the lines between the PayPal and Venmo apps, which currently operate separately. PayPal has 429 million active accounts, with Venmo accounting for about 90 million active users.
PayPal has plans to "unify" its rewards programs and it's also considering making its PayPal and Venmo apps—which currently operate separately—interoperable for sending peer-to-peer payments, Schulman said.
"The bigger [networks] are, the more valuable they are and the ability to start to link PayPal and Venmo P2P through interoperability, I think is a big opportunity," Schulman said.
The company is also working on an initiative that would allow teens to create their own Venmo accounts, according to Schulman. He didn't provide a timeline or further details on that rollout.
To accelerate transaction growth among its top users, PayPal is adding more shopping features to its app during the second half of the year, and simultaneously playing up Honey, its browser extension that helps customers search for deals and coupons.
"As the macroeconomic factors such as inflation impact our customers, our services like PayPal Honey are helping consumers make their money go further," Schulman said.
Analysts are cautiously optimistic about PayPal's profits to gain momentum going into 2023.
"A lot of moving parts to consider as PayPal enters the second half of the year, but we feel incrementally positive on the company's ability to meet the revised outlook, and see PayPal setting up well into next year, assuming the macro remains stable," analysts for J.P. Morgan said Tuesday in a note to investors.
