PayPal shares dive after weak results

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. 

For 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