PayPal cuts growth forecast amid economic uncertainty

PayPal has lowered its expectations for earnings and new-user growth for the year as global economic uncertainties mount.

The San Jose, California-based company expects to add just 10 million new customers this year, down from about 50 million who signed up last year when PayPal was still riding the pandemic-related surge in e-commerce transactions, CEO Dan Schulman told investors when announcing the company’s first-quarter earnings on Wednesday.

“You’ve got higher inflation now, which is I think disproportionately affecting our customer base that skews more toward discretionary spend versus nondiscretionary spend,” Schulman said.

E-commerce sales slowed globally during the first quarter as in-store sales crept up, while Russia's conflict with Ukraine plus regional COVID-19 lockdowns in China contributed to “local uncertainty and incremental inflationary and supply-chain pressures,” he said.

PayPal suspended transactions in Russia early in the Ukraine conflict, driving an incremental decline in revenue. Since then, the company has enabled PayPal users to send $100 million in funds to Ukrainian citizens and refugees, Schulman said.

Bloomberg

PayPal said its revenue will rise only 11% to 13% this year, a downward revision from an earlier forecast PayPal floated a few months ago of 15% to 17% revenue growth for 2022.

PayPal added 2.4 million new customers during the first quarter, bringing its total to 429 million users, up 9% from a year earlier.

Instead of trying to attract masses of new customers through promotions — a tactic that contributed to the creation of 4.5 million fake accounts, largely from fraudsters using bots — PayPal is focusing on boosting existing customers' use of its digital wallet with peer-to-peer payments, shopping and deals, bill payment and a savings account.

About 30% of PayPal app users generate 80% of PayPal’s total payment volume, Schulman said, with slightly more than half of all PayPal customers having downloaded the app since it launched last year.

PayPal’s buy now/pay later product, its “Pay in 4” interest-free installment loans, are booming. During the first quarter, PayPal’s BNPL loans generated $3.6 billion in payment volume, up 256% over the previous quarter, Schulman said. He noted that 18 million consumers have used PayPal’s BNPL service to date, which is also accessible through PayPal's digital wallet.

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Revenue from PayPal's Venmo unit rose about 60% during the quarter and volume was up 12%, to $58 billion. Venmo now has more than 85 million users, Schulman said.

“Our goal in the coming year is to drive more commerce transactions on Venmo while continuing to be a leading P2P platform,” he said, noting that Amazon will begin accepting payments via Venmo in the second half of this year.

PayPal’s total payment volume during the first quarter reached $323 billion, up 15% from $285.4 billion a year earlier. 

PayPal generated net revenue of $6.5 billion during the quarter, up 8% over $6 billion a year earlier. Operating income for the quarter was $700 million, down 32% from $1.04 billion a year earlier.

PayPal's revised growth expectations provide more realistic expectations for investors, Trevor Williams, an analyst with Jefferies, said in a note to investors.

"The reset was necessary to making the stock investable, but distinguishing between conservatism and fundamental pressure will be challenging near-term," Williams said in the note. 

Separately, KGO-TV reported on Wednesday that in June PayPal plans to vacate its office in San Francisco that houses its Xoom cross-border payments app. Employees will have the option to work remotely or at PayPal's headquarters building in San Jose.