PayPal published mixed results for the fourth quarter of 2021 last Tuesday and expects relatively weak growth prospects for the start of the year. Shares of the online payment giant tumbled 26% following announcements that caused it to lose nearly $50 billion in market value in a single day.
PayPal published (pdf) last week its financial results for the fourth quarter of 2021 and announced a turnover of 6.92 billion dollars, up +11.9% compared to the previous quarter. Its profit collapsed to 801 million dollars, against 1.5 billion dollars in the third quarter. When these results were announced, the action fell by 26%, bringing its market capitalization to $155 billion, down very sharply from its peak of $360 billion reached in July 2021. In question, results in sharp slowdown while the company had experienced an increase in its income in the heart of the pandemic with the explosion of e-commerce. The company had indeed seen a stock jump of 111% in 2020 and another 25% in the first half of 2021. But the machine failed to keep up and take full advantage of the situation. Its stock has steadily tumbled this year with a 35% drop in the second half of 2021 due to sluggish user growth and higher inflation weighing on personal spending.
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Slower user growth on PayPal
With 9.8 million accounts created against 16 million in the same period last year, PayPal is disappointing. She now counts 426 million active customersfar from the target set: to reach 750 million active accounts by 2025. The drop in the total is partly due to the closure of 4.5 million fraudulent accounts that had joined the platform during a campaign of recruitment and attempted to reap the benefit of these offers without ever intending to be a legitimate customer said CFO John Rainey. The company now expects to add 15-20 million new accounts this year and has backtracked on its target of 750 million total accounts set. ” Going forward, we will continue to grow our user base, but we will focus on sustainable growth and driving engagement. To be very clear, it is a choice on our part. We could grow our user base and accelerate our trajectory of net new assets. However, we believe there are better ways to achieve our bottom line explained the John Rainey.
PayPal has also incriminated ” exogenous factors such as inflation that is weighing on consumer spending for part of PayPal’s user base, and supply chain issues that have a ” disproportionate impact on cross-border payments, especially from China to explain its slowdown. PayPal now expects revenue growth of around 15% to 17% for the full year of 2022.
Withdrawal from eBay and change of strategy
The company was also affected by its separation from eBay. eBay had acquired PayPal twenty years ago to handle payments for its website. In 2015, the two companies went their separate ways and eBay slowly transitioned to its own payment system. Last June, eBay decided to stop allowing sellers on its site to use PayPal, catching the payment company by surprise. This would have cost him $1.4 billion in revenue in 2021 ”, according to its CEO Daniel Schulman and should be closer to 600 million dollars this year. In the third quarter, PayPal will not have to adjust its results for eBay.
This quarter nevertheless marks a key period for the company, which surprised analysts with its change in strategy. Once looking to grow its user base, for example, through high-cost incentive campaigns, the company is now focusing on building loyalty and improving revenue per customer. A longer-term strategy that can pay off thanks to the development of an integrated ecosystem that now includes online and in-store purchases, cashback and split payment. If the loss of eBay will hurt the company, PayPal has not rested on its laurels and has already developed partnerships with other companies to replace it. PayPal has announced agreements with Amazon, DoorDash or Instacart, allowing it to hope for 20% growth by the end of the year.