PayPal collapses as forecast of zero profit growth in 2024 casts doubt on its change of strategy – 02/08/2024 at 4:35 p.m.

((Automated translation by Reuters, please see disclaimer https://bit.ly/rtrsauto))

(Updated stocks, added chart, Evercore comments in paragraph 7 and CEO comments on innovation in paragraphs 14-15) by Manya Saini and Mehnaz Yasmin

Shares of PayPal PYPL.O fell 9% in early trading Thursday after it forecast flat adjusted profit for 2024, disappointing investors who had hoped the payments company's newly appointed chief executive would revive its growth.

In a call after the earnings release, Chief Executive Alex Chriss outlined a strategic plan aimed at leaner the company in its pursuit of profitable growth as well as easing pressure on its shares, which have been l one of the worst performances of the Nasdaq 100 .NDX index in 2023.

Wall Street analysts said the outlook will weigh on shares in the near term, but the new initiatives will likely pay off over time and benefit the company.

“It is clear that 2024 will be a larger transition year than we had anticipated, with previously targeted operating leverage occurring after 2024. We expect pressure on stocks as estimates are revised to decline,” JPMorgan wrote in a note.

At current levels, if losses continue, the stock would lose about $6 billion in market value.

It trades at a forward price-to-earnings ratio – a widely used benchmark for evaluating stocks, which compares the stock price to expected future earnings – of 11.64, compared to 21.08 for rival Block SQ.N, according to LSEG data.

“PayPal continues to face the dual challenges of market share and customer loss in its PYPL branded wallet business,” Evercore analysts wrote in a note.

MOVE THE NEEDLE

“We are doing a lot of things to drive change internally and externally. However, nothing happens overnight. It will take time for some of our initiatives to gain momentum and move the needle,” Mr. Chriss said in a conference call.

Morningstar analysts said management's outlook suggests the road to improving growth and profitability will be longer than expected.

“Management's commentary suggests that PayPal will not see significant improvement in its growth or margins this year,” they added.

Paypal also said it would no longer provide annual revenue forecasts, a departure from standard practice and further clouding its outlook.

The Californian fintech also said that forecasts for 2024 will see a “minimal contribution from the innovations” it recently outlined.

“We want to see execution and clear results before integrating these initiatives into our financial outlook,” Chriss said.

Last month, PayPal said it was launching new artificial intelligence-based products as well as a one-click checkout feature, joining companies trying to tap into investors' enthusiasm for AI.

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