PayPal says its innovations' impact will take time

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David Paul Morris/Bloomberg

PayPal's turnaround strategy from a two-year stock slide includes an aggressive roadmap of products to sell to consumers and merchants. But its toughest sell — to analysts and investors — may be patience.

PayPal on Wednesday forecast flat profit growth for the next year, at $5.10 per share for 2024, which was the same as 2023 and below analysts' expectations of $5.48. 

"We're doing a lot of things to drive change," said CEO Alex Chriss during Wednesday's earnings call. "Nothing happens overnight." 

For the quarter ending December 31, PayPal reported revenue of $8 billion, up from about $7.4 billion the prior year and above analysts' projections of $7.87 billion, according to Yahoo, which cited data from LSEG. Profit was $1.48 per share, better than analysts' projections of $1.36 per share. PayPal's management described 2024 as a year of "transition" or "execution."  

The company added that it will stop providing annual guidance in future earnings reports, and will instead focus on quarterly results. It projected first-quarter 2024 revenue growth of 7% and earnings-per-share growth in the mid-single digits. 

PayPal's flat guidance includes minimal contribution from a suite of new products the company announced last month, with Chriss saying PayPal wants to see "clear results" before embedding the new products' performance into its results. 

Under analyst questioning on when the new products would result in added revenue, Chriss said "We are working now on this and will update you when we see points on the board and adjust guidance as needed." 

PayPal will launch a new app in the near future and will work to address adoption in some of its products. For example, PayPal has 27 million active accounts in the U.S, but only 2% have a PayPal rewards account. These rewards customers produce double the average revenue per account, the company said. Also, Venmo debit-card customers produce six times the incremental revenue compared to  accounts that are P2P only, yet only 6% of Venmo consumers have a card. "There is a lot of room for more growth here," Chriss said. 

PayPal and Venmo announced plans in January to deploy several new AI-powered products, including an online checkout system that enables consumers to pay with a one-time passcode and a few taps; enhanced product recommendations for shoppers; expanded incentive programs and about a dozen other products related to shopping, checkout, Venmo and business functions. 

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More recently, PayPal made a small investment in the fintech Mesh, using PayPal's stablecoin, which has gotten off to a relatively slow start.

PayPal will also use low and no-code programming for the technology it offers to small-business clients. Low or no-code software is designed for non-technical users, enabling them to access pieces of pre-built software to construct a larger program. Low code is becoming popular among payment firms as a way to attract small businesses and merchants that require fast upgrades to accommodate digital commerce. 

PayPal's moves are part of Chriss' strategy to focus more on higher-margin products and technology development, saying the company "lacked focus" in more recent years. Thus far, that strategy has included the development of new checkout and shopping technology for both merchants and consumers, as well as selling its logistics subsidiary Happy Returns to UPS. 

"[All of these products] are changing the way we engage with customers and our merchants; it's the entire customer lifecycle we're looking at. Not just the checkout," Chriss said.

PayPal faces competition from other payment technology companies such as Stripe and Block, and is plotting a recovery from a rough patch that has seen its stock decline — as have other fintechs — following a spike in its stock price during the pandemic and the corresponding rush to digital commerce. PayPal's stock was trading at about $63 per share on Wednesday afternoon. That's up from about $51 per share at the time of PayPal's last earnings report covering the third quarter of 2023, but down from a high of $291 per share in spring 2021. The company's correction has included downsizing, with the latest staff reduction coming about two weeks ago. 

"Our size has been slowing us down," Chriss said, adding that it was difficult to make the cuts.  

In a research note on PayPal's new products, analysts at Jeffries were bearish on PayPal's product roadmap, saying it "fell short" of the "hyped up" billing.  

"With 2024 already framed as a 'transition year' in management's recent public commentary, we think buying into a 2025 reacceleration story will be incrementally more challenging without a compelling product-driven thesis behind it," Jeffries said. In a note on Wednesday's earnings report issued shortly after the market closed, Jeffries called PayPal's performance and outlook a "clear reset."