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PayPal drops after spending slowdown forecast cut

The shares of PayPal Holdings Inc. fell after the company lowered its annual revenue forecast due to a slowdown in spending growth on its platform.

The shares of PayPal Holdings Inc. fell after the company lowered its annual revenue forecast due to a slowdown in spending growth on its platform.

Payment volume on PayPal’s platforms rose 14% to $337 billion in the third quarter, excluding analysts’ average estimates of $343.2 billion. PayPal said it now expects revenue for the year to rise 10% to $27.5 billion, compared to a previous forecast of $27.85 billion.

“Obviously you’re seeing discretionary spending under pressure as people are spending more and more of their disposable income on gas, food and rent,” CEO Dan Schulman said in an interview on Thursday.

Schulman is experiencing a slowdown in spending growth on PayPal’s many platforms, spurred by the reopening of the US economy in the wake of the pandemic and by inflation that only occurs once in a generation.

PayPal shares fell about 6.9% in premarket trading before the New York stock exchanges opened. Shares recovered some of their previous losses on Thursday to close at 3.7% after PayPal closed a deal with Apple Inc.

In response, the company has vowed to cut costs — including through job cuts and office closures across the country — which it says will result in savings of $900 million this year and $1.3 billion next year. Schulman has spoken out about his plans to improve operating leverage, or the ability to grow revenues faster than expenses.

Third-quarter expenses rose to $5.73 billion, well below the $5.92 billion average estimate of 9 analysts polled by Bloomberg. The company now expects pressure to cut costs to support adjusted earnings for the year, even as it lowered its annual revenue forecast.

“We delivered strong third quarter results,” Schulman said in a statement announcing the results. “We will continue to invest in our key priorities to strengthen our leadership position in digital payments and commerce.”

Revenue rose 12% to $6.85 billion during the quarter. That was higher than the $6.81 billion analysts had forecast, and PayPal said it now expects adjusted earnings to climb to $4.09 per share, up from $3.87 to $3.97 earlier. was expected.

PayPal revamped its marketing this year to focus on encouraging existing users to become even more active rather than adding new customers who may not be heavy users of the platform. Those efforts appear to be paying off, with transactions per active account up 13% in the quarter to 50.1.

“We continue to execute on our strategy to deliver profitable long-term growth,” Acting Chief Financial Officer Gabrielle Rabinovitch said in the statement. “Our strong third quarter results reflect both the diversification of our business and our continued focus on operational discipline.”

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