PayPal Forecasts Flat Profit Amid Transition Year, Shares Dip

Key Points

• PayPal anticipates flat growth in adjusted profit for 2024, overshadowing strong earnings report
• Adjusted earnings per share expected to remain at $5.10, reflecting cost adjustments and restructuring charge
• CEO Alex Chriss emphasizes ongoing transformation efforts to drive profitable growth

In a significant development, PayPal's projection of stagnant growth in adjusted profit for the current year has dampened investor sentiment despite the company surpassing market expectations with its latest earnings report. Following this announcement, shares of the payment giant experienced a 5% decline in extended trading.

The company, which has been diligently working towards cost reduction and profit enhancement strategies, revealed that it foresees adjusted earnings per share of $5.10 for 2024, mirroring the figures from the previous year.

This outlook incorporates various adjustments totaling approximately $1.8 billion, encompassing estimated stock-based compensation expense, related payroll taxes, and a restructuring charge of around $120 million.

Despite the overshadowing effect of this forecast, PayPal's fourth-quarter earnings report showcased remarkable performance, surpassing Wall Street estimates fueled by robust holiday shopping activities. Notably, this marks the company's first full quarterly results under the leadership of CEO Alex Chriss, who is slated to unveil strategic initiatives later today.

Chriss expressed confidence in the ongoing transformation efforts, stating, "We're driving significant transformation across our company and are committed to making the necessary changes to our business to drive profitable growth in the years ahead."

For the fourth quarter, PayPal reported an adjusted profit of $1.48 per share, exceeding analysts' expectations of $1.36 per share. Moreover, revenue witnessed a 9% surge to $8 billion, on a currency-neutral basis, surpassing the anticipated $7.87 billion.

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Despite these impressive figures, PayPal faced challenges in the preceding year, with its growth trailing behind competitors amid mounting pressure on its core business from tech giants like Apple and Alphabet's Google. In response, the company announced plans to trim its workforce by 2,500 jobs, constituting 9% of its global workforce, as part of its efforts to streamline operations and prioritize higher-margin segments.

Analysts have closely monitored PayPal's margins, which have failed to meet investor expectations in recent quarters. While the company's low-margin products have exhibited robust growth, its branded products have experienced a slowdown due to intensified competition.

The adjusted operating margin for the fourth quarter stood at 23.3%, marking a 39 basis point expansion compared to the previous year.