PAYPAL forecast fourth-quarter revenue below estimates on Tuesday (Oct 29) as the digital payments company shifts its focus to higher-margin businesses from aggressive expansion, sending its shares down 4 per cent before the bell.
Efficiency has been a focal point for PayPal as CEO Alex Chriss, who took the helm last year, stresses on cost discipline, resulting in job cuts and increased investments in automation and artificial intelligence.
The strategy shift has also led the company to moderate growth in low-margin units such as Braintree, which provides payments technology to businesses, and instead focus on lucrative segments like branded checkout.
“We are making solid progress in our transformation as we bring new innovations to market, forge important partnerships with leading commerce players, and drive awareness and engagement through new marketing campaigns,” CEO Chriss said.
PayPal expects revenue in the fourth quarter to grow by a “low single-digit” percentage compared with the 5.4 per cent range analysts polled by LSEG had expected.
Third-quarter revenue jumped 6 per cent to US$7.85 billion but missed estimate of US$7.89 billion. Still, strong spending trends allowed PayPal to lift its 2024 profit forecast for the third time this year.
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It expects earnings per share, excluding one-time costs, to grow in the “high-teens” percentage range in 2024 – an increase from its prior forecast of “low to mid-teens”.
Adjusted profit grew 14 per cent to US$1.23 billion in the third quarter. On a per-share basis, PayPal earned US$1.20 versus 98 cents a year ago.
Competitive pressures persist
Rivals, including Zelle and tech giants such as Apple and Alphabet, have eroded PayPal’s dominance in a fast-evolving payments industry.
To maintain its competitive edge, PayPal is pursuing new partnerships and expanding existing ones with companies in the retail and payments sector such as Fiserv, Adyen, Amazon, Global Payments and Shopify .
These partnerships, along with the “one-click” checkout feature called Fastlane that PayPal introduced in January, have resulted in a 36 per cent surge in its shares this year, outperforming the S&P 500 index.
Analysts, however, said these are longer-term initiatives and may take some time to move the needle.
The company’s operating margins, on an adjusted basis, expanded 194 basis points to 18.8 per cent in the third quarter.
The metric has been under scrutiny over the past year as investors assess the sustainability and overall health of PayPal’s business. REUTERS
