PayPal (PYPL.US) shares are losing nearly 25% today amid the company's release of a weak Q4 2021 report and 2022 guidance. PayPal also reported weaker-than-expected revenue guidance for 2022, citing inflation and supply chain disruptions, among other factors, as culprits for the current situation. PayPal reported earnings per share of $1.11 in its Q4 2021 report, missing expectations of $1.12. However, the company beat revenue estimates in Q4 2021, coming in at $6.92 billion versus $6.87 billion expected according to Refinitiv.
The company's 2022 revenue growth projections oscillated between 15 and 17%, meanwhile, analysts expected 2022 revenue growth to be close to 18%. Thus, PayPal's forecast does not seem to deviate significantly from analysts' expectations. This raises the question of whether the market has overreacted by reacting with such a large sell-off of the company's shares. PayPal CEO Dan Schulman conveyed in an interview with CNBC that revenues are likely to accelerate in the second half of this year.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appFor 2022, PayPal currently forecasts earnings per share in the range of $4.60 to $4.75, again about 10% below Wall Street estimates. Analyst estimates pointed to $5.22 per share. The company also said it expects $0.87 earnings per share for Q1 2022, well below the $1.16 per share analysts were expecting. Total payments' volume from PayPal customers rose 23% to $339.5 billion. Analysts had forecast total payment volume of $345.40 billion.
The basis for PayPal's share price declines, however, goes beyond the disappointing profit forecasts. In 2015, PayPal's partnership with US marketplace giant eBay came to an end. Since then, eBay has been transitioning to its own payment system, not including PayPal, and is now almost in the process of finalizing a new deal with Dutch financial technology provider Adyen (ADYEN.NL)
PayPal CEO Dan Schulman also blamed inflation for the company's performance and growth outlook, which has caused some PayPal users to limit spending to the minimum necessary, and pointed to a supply chain problem that adversely affects cross-border payments coming in from China in particular. PayPal has also seen a slowdown in user growth, a measure of net active accounts falling short of the company's targets. FinTech companies sometimes offer benefits to new users in the form of cash bonuses, among others, to attract new users to the platform. Meanwhile, PayPal CFO John Rainey relayed that in this case, several million such new accounts were excluded from quarterly user growth and weakened the company's bottom line.
However, it is worth bearing in mind that PayPal's customer base still represents over 400 million users. The company also communicated that it expects to add 15 million to 20 million new accounts this year, which deviates from the market's estimate of 50 million accounts. The company also backed away from its original goal of 750 million accounts, intending to focus on the ⅓ of customers who primarily drive the company's bottom line. In the meantime, however, PayPal is struggling, with shares of PayPal receiving a Relative Strength Rating of 19 out of a possible 99, according to IBD Stock Check analysis, indicating the company's plight.
PayPal is losing 25% today, but looking at the last several months, the company's stock has capped about 80% of the upward momentum started after the pandemic first hit. Today's declines have been halted by the lower limit of the upward gap from May 2020. Source: xStation 5
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
