PayPal drops after lowering operating margin expansion forecast

PAYPAL Holdings shares slumped after the payments giant warned that its adjusted operating margin won’t grow as quickly as the company previously anticipated, even after spending on its platforms jumped more than expected in the first quarter.

PayPal’s adjusted operating margin – which measures how much profit a company makes on each dollar of sales without using generally accepted accounting principles – is likely to expand by at least 100 basis points this year, the San Jose, California-based company said in a statement on Monday (May 8). That compares with an earlier forecast of growth of about 125 basis points.

The firm’s shares fell 4.1 per cent at 5.02 pm in late New York trading. They had gained 6 per cent this year through the close of regular trading on Monday.

The lowered guidance comes even after payments volume climbed 12 per cent to US$354.5 billion, topping the US$349.5 billion analysts in a Bloomberg survey were anticipating. That helped boost firmwide revenue to more than the company forecast just three months ago, causing the company to raise its full-year forecast for adjusted earnings per share.

“We obviously had a good strong start to the year,” chief executive officer Dan Schulman said in an interview. “It definitely was stronger than our expectations coming into the year.”

PayPal, like many of its rivals in e-commerce, had been dealing with a slowdown in volume on its many platforms as consumers returned to in-store shopping and spending slowed amid once-in-a-generation levels of inflation. In the first quarter, the company cut 2,000 staffers, citing the macroeconomic slowdown that’s weighed on the firm’s business in recent quarters.

Schulman announced in February that he intends to step down at the end of the year and that the board has retained a search firm to help find his successor. In the meantime, he’s been refocusing PayPal on enticing existing customers to use its apps more, as opposed to the previous focus on adding millions of new users every quarter.

Those efforts continued to bear fruit in the first quarter, with transactions per active account climbing 13 per cent to 53.1.

Firmwide revenue jumped 10 per cent to US$7.04 billion. Excluding one-time items, earnings totalled US$1.17 a share, topping the US$1.10 average of analyst estimates compiled by Bloomberg.

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“We remain focused on advancing our strategic priorities while operating with discipline in what remains a dynamic environment,” Gabrielle Rabinovitch, PayPal’s acting chief financial officer, said in the statement. BLOOMBERG