PayPal shares fell nearly 9 per cent in premarket trading on Thursday after it forecast a flat adjusted profit for 2024, disappointing investors who had hoped the payments firm’s newly appointed chief executive would reignite its growth.
It comes one week after the payments company said it would cut up to 205 jobs from its Irish workforce as part of a global effort to “right-size”.
On a post-earnings call, chief executive Alex Chriss laid out a strategic plan to turn the company leaner in its pursuit towards profitable growth as well as ease pressure on its shares, which were one of the worst performers on the Nasdaq 100 Index in 2023.
Wall Street analysts said the outlook will weigh on shares in the near term but the new initiatives would likely bear fruit in time and benefit the company.
“It’s clear that 2024 will be more of a transition year than we were expecting, with previously targeted operating leverage coming after 2024. We expect pressure on the stock as estimates come down,” JP Morgan wrote in a note.
At current levels, if losses hold, the stock would lose roughly $6 billion (€5.6 billion) in market value.
It trades at a forward price-to-earnings ratio - a widely-used benchmark for valuing stocks which compares its share price with projected future earnings - of 11.64, compared with rival Block's 21.08, according to LSEG data.
“We’re 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 scale and move the needle,” said Mr Chriss in a conference call.
Analysts at Morningstar said management's outlook suggests the road towards improving growth and profitability will be longer than expected.
"Management's commentary implied that PayPal won't see a meaningful improvement in either growth or margins this year," they added.
Paypal also said it will no longer provide an annual revenue forecast, a departure from regular practice and further clouding its outlook.
“Given the considerable changes underway at the company, we believe it is prudent to guide revenue one quarter ahead and provide updates as the year progresses,” said chief financial officer Jamie Miller. – Reuters
