PayPal stock pointed 19% lower in premarket trading Wednesday.
PayPal ‘s fourth-quarter earnings, and particularly its disappointing outlook, are spooking investors. Wall Street is already reassessing the stock.
The payments company reported a fourth-quarter profit of $1.11 a share, narrowly missing forecasts of $1.12 a share. Sales of $6.92 billion topped estimates for $6.89 billion. But it was PayPal’s 2022 guidance that really upset the apple cart.
“The narrative will be driven entirely by a FY22 outlook that, to put it bluntly, lacks anything redeeming,” Jefferies analyst Trevor Williams said. He’s not wrong–the stock fell 25% shortly after the open to $131.50.
The company said it expects to earn between $4.60 and $4.75 a share in fiscal 2022, below forecasts for $5.25. Guidance for revenue growth of 15% to 17% is also lower than its initial 18% forecast.
But the most alarming guidance, for many, came in the form of net new active accounts (NNAs). The company expects to add 15 million to 20 million NNAs in 2022, down from 48.9 million in 2021. A year ago, it set out plans to double its active accounts to 750 million by 2025.
In fact, that target was effectively scrapped, with chief financial officer John Rainey saying it was no longer “appropriate” on the company’s earnings call. Instead, the company’s focus will pivot toward increasing revenue per active account.
Wall Street has already started picking the bones out of all that, and it isn’t best pleased.
Raymond James downgraded the stock to Market Perform from Outperform, citing the company’s “lackluster outlook.”
PayPal’s 2022 outlook “will raise some eyebrows and send estimates significantly lower,” Raymond James analyst John Davis said in a note Wednesday. He said the company’s medium-term outlook for a 20% compound annual growth rate for revenue and 22% for earnings per share through 2025–unveiled a year ago–was “more than aspirational at this point.”
“As such, we are moving to the sidelines as we believe shares will be rangebound from here (down 17% after hours) until growth accelerates, and investors gain confidence the 2022 guide is overly conservative,” he said.
They weren’t the only ones; BTIG analysts, led by Mark Palmer, also downgraded the stock late Tuesday to Neutral from Buy, removing their price target of $270. Palmer said PayPal’s expectation for 15 million to 20 million new active accounts was “particularly noteworthy,” adding that Wall Street was expecting a year-over-year increase rather than a steep decline.
“While we continue to believe in the long-term potential of PYPL’s platform and the ‘super app’ it has been building, its 4Q21 report raised significant questions about the company’s near-term prospects,” he added.
The shift in approach to customer acquisition and engagement is “one new area of uncertainty,” BTIG noted, but there was another. Rainey said on an earnings call to analysts that “the persistence of inflationary effects on personal consumption, labor shortages, supply-chain issues and weaker consumer sentiment have led us to adopt a more cautious outlook.” BTIG said that was in “sharp contrast” with more upbeat annual outlooks offered recently by card networks.
It wasn’t all doom and gloom out there. JPMorgan stuck with its overweight rating on the stock, though it lowered its price target to $190 from $272. “We were bracing for an underwhelming outlook, and what management communicated was broadly disappointing, but probably necessary to reset expectations in order to get back to beating and raising expectations,” the bank’s analysts said.
However, they said PayPal’s strategy pivot, so soon after setting its 750 million NNAs by 2025 target, raised “competitive concerns.”
Wedbush also kept its Outperform rating intact, citing more favorable comparisons in the second half of 2022 and the possible cross-border travel recovery. Though it did slash its price target from $220 to $170.
Even PayPal’s defenders on Wall Street have taken an ax to their expectations for the stock.
Write to Callum Keown at email@example.com