PayPal shares plunge as company reports decline in volume

Just days after all three major networks provided the market with monster updates, PayPal seems to be feeling the pressure.

PayPal shares fell more than 25% in early trading on Wednesday after the company warned that inflation, supply chain pressures and weakening ecommerce figures would hit its expected growth rate this year.

The company, which had received a boom in new users during the pandemic, also revealed that many of its new accounts had failed to generate any meaningful business.

PayPal slashed its forecasts for user numbers and said it would pivot to focusing on more active, higher-value customers.

Shares fell as much as 26.6% to a 21-month low of $129.01 shortly after Wall Street’s opening bell.

The move wiped almost $55 billion from its market capitalisation, which had stood at more than $205 billion before the release of quarterly results.

Worries about a slide in payment volumes as economic conditions worsen have also hit other payment providers, with rival Block, formerly known as Square, down more than 12%.

PayPal management pointed to several factors that had started to dent payment volumes. These included supply chain problems that were eating into cross-border transaction volumes, reductions in travel and events because of rising coronavirus cases, the elimination of government stimulus and inflation.

The fall-off was being felt particularly among “lower-income cohorts”, John Rainey, chief financial officer, said during an earnings call.

Rainey also revealed that PayPal was abandoning its medium-term target of reaching 750 million users after finding that many of the 120 million new customers added over the two years of the pandemic had failed to actively use the service.

The company was instead turning its focus to encouraging its more active users to raise their spending levels, making it likely that many of the people drawn to the service during the pandemic would fall away.

The company’s fourth-quarter results also took a hit from a botched incentive campaign. PayPal last year began offering a referral bonus of as much as $10 to existing users for signing up a friend without an account, but Rainey said the company identified 4.5 million accounts it believed were created illegitimately.

The number was “immaterial” to PayPal’s overall base of 426 million customer accounts but “affected our ability to achieve our guidance” in Q4, he said.