PayPal plummets as Wall Street likens CEO's strategy to 'turning around the titanic'
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PayPal shares tumbled more than 10% Thursday after a disappointing forecast added to uncertainty around the payments giant. While the company posted beats on most metrics for its fourth quarter on Wednesday, PayPal guided for earnings that were well below expectations. The company also saw a slowdown in its user base. PayPal is known for pioneering online checkout in the dot-com era. But it’s facing fierce competition from new entrants like Apple Pay and has struggled to dominate e-commerce as online shopping shifts to mobile phones. PYPL 1D line PayPal performance through the day Alex Chriss, who took over as chief executive last September, has conceded that PayPal over-hired during the pandemic, lost focus and was doing too much. He called 2024 a transition year and told CNBC in a phone interview that the company was staying “conservative” on guidance. Still, investors expect the turnaround to take a while, and they are lowering expectations while they wait. The average EPS estimate dropped by 5% after earnings with less than half of analysts covering the stock with a buy rating, according to FactSet. Just a year ago, two-thirds of analysts were bullish on PayPal. “While we appreciate the energy PYPL’s new management team brings to the table, for those of us who have intimately documented the last two years, it’s no surprise that turning around the titanic that is PYPL will be no small feat,” Wells Fargo analyst Andrew Bauch said in a note to clients. ‘Show me’ stock PayPal’s CEO faced criticism for over-promising before its Jan. 25 product event . The company announced plans for a faster checkout experience using artificial intelligence, calling it PayPal’s “next chapter.” It was the first major announcement by Chriss, who joined PayPal from Intuit. Leading up to that, Chriss told CNBC PayPal planned to “shock the world.” The products that followed were widely viewed as underwhelming. Gordon Haskett analyst Don Bilson told clients the CEO didn’t shock the world: “puts them to sleep is more like it.” “His honeymoon period officially ended yesterday with an unforced communications error,” Bilson said. “The gaffe that clipped the stock on Thursday is traceable [to] this company presentation where Chriss gave investors a glimpse at the most ‘impactful innovations’ the company is piloting. … PYPL’s presentation didn’t shock anybody since it didn’t feature any new product announcements or initiatives.” During PayPal’s earnings call Wednesday, executives highlighted their cost-savings plan and ways to speed up its checkout offering. As part of that, PayPal laid off 9% percent of its workforce in late January in an effort to “drive more focus and efficiency.” Chriss underlined a conservative approach to guidance and told CNBC that executives “want to see points on the board” and “to actually execute before we will put it into our forward guidance.” On an hour-long call with analysts, he talked about earning trust from the investor community. “As a company, we will build back a track record of delivering on our commitments,” Chriss said. Bank of America described 2024 as a “transition year” with PayPal investing some of those recent cost savings. The firm’s analysts expect the “turnaround will likely take time.” They lowered their price target by $2 to $64 with a neutral rating on the name, saying valuation and recent sentiment that “may offer some downside support.” Deutsche Bank called PayPal a “show me stock.” “The highlight of the call was PYPL’s vision to fix many of the lingering issues the company is facing and now we watch for progress,” said Bryan Keane, analyst at Deutsche Bank. “The good news is the new CEO has a good handle on the issues, but the question remains if the issues can be fixed or if the company structurally impaired?” — CNBC’s Michael Bloom contributed to this report.
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