PayPal (PYPL) shares plunged 20% last Tuesday after the payments processing company issued a weaker-than-expected Q4 earnings report and financial outlook, due in part to increased competition.
In addition to its quarterly results, PayPal also announced that CEO Alex Chriss, who was appointed in 2023, was stepping down in March, to be succeeded by former HP (HPQ) CEO Enrique Flores. PayPal added that despite progress being made over the past two years in certain areas of the company, “the pace of change and execution was not in line with the board’s expectations.”
Shares of PayPal were still down 22% as of market close on Friday.
We asked Seeking Alpha analysts Justin Purohit, JR Research, and Kenio Fontes what they thought PayPal could do to turn its business around.
Justin Purohit: I believe PayPal’s (PYPL) turnaround hinges on disciplined execution across branded checkout. This could be achieved through scaling biometric authentication, improving checkout presentation, and deepening consumer engagement. I also believe it’s important that PYPL narrow its focus to high-impact merchants. This could quickly restore volume growth. In my view, even modest execution improvements on this front could help propel the stock higher from current levels.
JR Research: PayPal stock’s (PYPL) hovering close to 2017 levels is the market passing judgment on a previous turnaround plan that didn’t gain much traction. Alex Chriss brought needed product expertise from Intuit, but lacked execution. I believe incoming CEO Enrique Lores understands the execution challenges in PayPal’s branded network, but it might not be enough to fend off incursions into its market share by rivals.
PayPal still has 439M active accounts, affording it significant scale to tweak its strategy to reaccelerate growth, if executed well. Network economics are front and center in the payments space, but execution must be coherent. A refreshed investor day held as soon as possible will be essential to assure the market that it will not be business as usual and help buy some time while the new team works out the execution.
Kenio Fontes: I see two paths for PayPal (PYPL). The first would be for management to try to maximize short-term profits, increase fees for loyal customers, reduce investments in new features, and consequently increase free cash flow. This is not the path I would like to see.
The second would be to recognize PayPal’s problems and the challenges of the competitive landscape. Nu Holdings (NU) is a good example for me, a bank that focused on digital, practicality, and accessibility, with most of its features being very cheap or free, and thus managed to disrupt the industry.
For me, the “good” path for PayPal would be to explore the large customer base and create an ecosystem that is profitable not only based on high transaction fees but also on cheap and good service. I mean credit/debit cards, BNPL, loans, and financial tools.
If the fees are cheaper and more competitive, they would at least be able to maintain volume as the company wins back the public and creates a more robust ecosystem. The point is getting users to use PayPal not just because they have to, but because it is truly a better-than-average service.
It is a transition that will take time, vision, and investments in brand, marketing, and technology. For this reason, the execution risk is high.