PayPal Holdings Inc. shares slumped after the payments giant warned that its adjusted operating margin won’t grow as quickly as the company previously anticipated, even after spending on its platforms jumped more than expected in the first quarter.
(Bloomberg) — PayPal Holdings Inc.
shares slumped after the payments giant warned that its adjusted operating margin won’t grow as quickly as the company previously anticipated, even after spending on its platforms jumped more than expected in the first quarter.
PayPal’s adjusted operating margin — which measures how much profit a company makes on each dollar of sales without using generally accepted accounting principles — is likely to expand by at least 100 basis points this year, the San Jose, California-based company said in a statement Monday.
That compares with an earlier forecast of growth of about 125 basis points.
The firm’s shares sank 11% to $66.93 at 10:21 a.m. in New York. The stock has declined 6% this year, compared with a 7.4% advance for the S&P 500.
The move comes after PayPal has seen better-than-expected results from its Braintree unit, which provides unbranded-payments technology to many of the country’s largest e-commerce retailers.
That’s bad news for the company’s margins because the business is less lucrative than the branded PayPal checkout experience.
“We’ve got a well-thought-through strategy and a set of actions that’s going to deliver increased transaction margin dollars,” Chief Executive Officer Dan Schulman said on a conference call with analysts.
“We’ve been focused on the same thing for over a year now: It’s drive branded checkout. That’s our No. 1 priority. All of our initiatives are linked to that. It’s our highest-margin service.
It’s our bread and butter.”
PayPal said payments volume climbed 12% to $354.5 billion, topping the $349.5 billion analysts in a Bloomberg survey were anticipating. That helped boost firmwide revenue to more than the company forecast just three months ago, causing the company to raise its full-year forecast for adjusted earnings per share.
PayPal, like many of its rivals in e-commerce, had been dealing with a slowdown in volume on its many platforms as consumers returned to in-store shopping and spending slowed amid once-in-a-generation levels of inflation.
In the first quarter, the company cut 2,000 staffers, citing the macroeconomic slowdown that’s weighed on the firm’s business in recent quarters.
Those job cuts and other restructuring costs cost the company $117 million in the first three months of the year, PayPal said in a separate regulatory filing.
For months, PayPal has been weighing a sale of a significant chunk of its $7.5 billion loan portfolio.
That move would follow the 2018 sale of about $6.8 billion in loans and receivables to Synchrony Financial at face value.
Gabrielle Rabinovitch, PayPal’s acting chief financial officer, said the company last year loosened underwriting for loans it was offering to business customers.
More recently, those changes resulted in higher losses than PayPal wanted, so the company has set aside additional provisions for souring loans and tightened its underwriting standards.
CEO Search
Schulman announced in February that he intends to step down at the end of the year and that the board has retained a search firm to help find his successor.
In the meantime, he’s been refocusing PayPal on enticing existing customers to use its apps more, as opposed to the previous focus on adding millions of new users every quarter.
Those efforts continued to bear fruit in the first quarter, with transactions per active account climbing 13% to 53.1.
Firmwide revenue jumped 10% to $7.04 billion.
Excluding one-time items, earnings totaled $1.17 a share, topping the $1.10 average of analyst estimates compiled by Bloomberg.
“We are encouraged by our start to the year, and, at the same time, mindful that the environment remains dynamic,” Rabinovitch said on the conference call.
“We’re focused on execution and will be agile and responsive to how the macroeconomic environment is playing out.”
(Updates share price in third paragraph, adds details about margins in fourth.
An earlier version of this story corrected a forecast figure in that story’s third paragraph.)
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