Shares of payments processor PayPal Holdings, Inc. (PYPL) slid by nearly 27% from their previous close in morning trading on Feb. 2, 2022. The key driver appears to be weak earnings guidance issued by the company for the first quarter of 2022. While the consensus estimate among analysts for Q1 2022 had been calling for non-GAAP earnings per share (EPS) of $1.16, PayPal now indicates that it expects the figure to be $0.87, or 25% lower than the estimate.
PayPal also indicated that it projects revenue growth to be between 15% and 17% for full year 2022, compared to a consensus estimate of 17.9%. PayPal CEO Dan Schulman told CNBC that, while he expects revenue growth to accelerate in the second half of 2022, his company faces headwinds from "exogenous factors" such as the negative impact of inflation on consumer spending and supply chain issues that are "disproportionately impacting" cross-border payments.
- Shares of PayPal tumbled in morning trading on Feb. 2, 2022, after the company issued weak guidance for Q1 2022.
- PayPal expects inflation to dampen consumer spending and supply chain issues to cut into cross-border payments.
- Meanwhile, card networks have issued more upbeat guidance about 2022, at variance with PayPal's gloomy view.
- The ongoing migration of eBay to its own payments platform and away from PayPal is another issue.
Schulman also indicated that challenges are arising from the movement of its former corporate parent, online marketplace eBay Inc. (EBAY), to its own payments platform. He told CNBC: "We've got eBay transition to work our way through. This transition is hiding some of the underlying strength of the business."
In 2021, adjusting results for the eBay transition put $1.4 billion of "revenue pressure" on PayPal. The negative impact is projected to fall to $600 million in 2022 and zero thereafter. After being acquired by eBay 20 years ago, PayPal was spun off in 2015. Since then, eBay has been transitioning to its own payment system and away from PayPal.
Meanwhile, PayPal missed user growth targets for Q4 2021 partly due to 4.5 million "illegitimate" accounts that had joined its platform. As a result, the company also has reduced its user growth goals going forward.
Those 4.5 million "illegitimate" accounts had joined the PayPal platform during incentive-based campaigns. Finance and tech companies often offer perks, such as cash bonuses, to drive users to their apps.
Card Networks: 'More Upbeat Annual Outlooks'
Regarding Schulman's remarks on the negative impacts of inflation and supply chain issues on company guidance, analysts at BTIG indicate that credit card issuers are painting a more optimistic picture. In a research note issued Feb. 1, 2022, BTIG analysts observed that PayPal's guidance "offered a sharp contrast with the more upbeat annual outlooks offered recently by the card networks."
Other PayPal 2022 Guidance Highlights
PayPal projects a two-year "spot CAGR" of about 24% for "revenue ex-eBay." Regarding its "revenue growth trajectory" for 2022, PayPal sees "acceleration throughout the year, as eBay drag diminishes, comparisons normalize, and initiatives continue to contribute."
PayPal projects that its total payment volume (TPV) will reach $1.5 trillion in 2022, after growing by between 19% and 22% for the year. Revenue growth between 15% and 17% will send revenue above $29 billion for the year.
Regarding net new accounts (NNAs), PayPal projects that between 15 million and 20 million will be added in 2022, following a record figure of about 120 million added since 2019. The guidance indicates that PayPal will: "Focus on sustainable, high quality growth to drive engagement and increased revenue per active account. Pull back on incentive-driven campaigns with low ROI; let minimally engaged users naturally roll off."
Excluding eBay, the guidance from PayPal indicates that revenue growth will be between 19% and 21% for full year 2022, while total payment volume (TPV) will increase by between 21% and 24%.