PayPal shares drop 25% this morning

In early morning trading today, shares of PayPal are off around 25% following the company’s earnings report yesterday evening. Investors did not like what the company had on offer.

journalist focuses on private companies and private markets. But at times, public companies can help us better understand what is going on in larger markets where startups compete. Such is the case with PayPal, which has an enormous footprint in the consumer fintech space through its products like Venmo.

If PayPal is doing well, we can infer that the larger consumer fintech market is doing pretty OK with reasonable confidence. And if PayPal is struggling, we need to understand why. After all, if something negative happens to PayPal, it could also be happening to startups with similar, related, or competing business models. (We’ve executed similar looks at fintech earnings before, scrying for startup hints.)

So. Let’s recap PayPal’s results, its guidance, and what drove investors to delete around a quarter of the company’s value overnight.

PayPal’s Q4 warning

PayPal’s fourth quarter saw total payment volume (TPV) at the company rise to $339.5 billion, up 23% compared to the year-ago period, resulting in revenues of $6.9 billion, up 13% on a year-over-year basis. From those figures, PayPal managed operating income of $1.5 billion, flat from the year-ago quarter, and cash flow improvements.

So far you are likely struggling to see why PayPal was so harshly treated this morning. Those numbers look just fine, yeah? Keep reading.

In its fiscal 2021, PayPal grew its TPV by 31%, its revenues by 17%, and added 48.9 million net new active accounts, or NNAs. What’s ahead for the company in its fiscal 2022? The following:

• TPV growth of 19% to 22%
• Revenue growth of 15% to 17%
• 15 million to 20 million NNAs

That’s a rapid deceleration from fiscal 2021 results. And the near-term news is even worse, with PayPal anticipating a meager 6% revenue growth in the current quarter. The company’s pandemic boom, it appears, has fully crested, now a historical note more than a continuing operating condition.

Investors, who had bid PayPal from the $110 to $120 per-share range before March 2020 to over $300 per share last summer, are now paying around $130 for its stock. PayPal has therefore given back effectively all the valuation gains it saw during COVID-19.