PayPal Holdings (PYPL)’s new Chief Executive Alex Chriss will finally get the chance to lay out his turnaround strategy for the payments company and PayPal stock when the financial tech powerhouse reports third-quarter earnings on Nov. 1. X It’s a rough road ahead for the former Intuit executive who started just four weeks ago who was the surprise choice to lead the San Jose, Calif.-based colmpany. He’s now at the helm of a company grappling with lackluster profit growth and disappointing results from its popular Venmo app. PayPal also faces stiffer competition with Apple (AAPL). PYPL stock is down 24% in 2023, shedding 12% since Chriss was named CEO on Aug. 14. PayPal stock has plunged 82% from its all-time high of 310.16 on July 26, 2021. PayPal Stock: Focus On Multiple Fronts Wall Street analysts don’t expect Chriss to unveil new major new plans, of course. But they will listen closely to what he says about new investments and new products. “We do not expect Mr. Chriss to announce significant changes to PYPL’s strategy and product roadmap, though he may identify areas for increased investment,” said Bank of America analyst Jason Kupferberg in a report. One area that Wall Street expects Chriss to focus on is the small-and-medium sized business, or SMB, market. PayPal blazed the trail for e-commerce payments that made it easier for entrepreneurs and shop owners to do business. That made PayPal CEO an ideal fit for Chriss who served as executive vice president of Intuit’s Small Business and Self-Employed Group, which accounted for “more than half of Intuit’s revenue.” “Throughout my career, I have championed small and medium businesses and entrepreneurs, who are the backbone of every economy in the world. Chriss served as executive vice president and general manager of Intuit’s Small Business and Self-Employed Group, which accounted for “more than half of Intuit’s revenue.” Two years ago, Chriss spearheaded Intuit’s $12 billion acquisition of the marketing automation platform Mailchimp. “We expect him to bring a renewed sense of urgency to product deployment, and the street will be focused on how he can leverage his SMB expertise,” Kupferberg wrote. Chriss will need to focus on several other fronts. PayPal, which began as an online checkout service, is pushing hard to expand its reach in financial services. His predecessor Dan Schulman famously pushed for the creation of a super app that would offer users more ways to manage their money, including a savings account and early access to their pay. PayPal is even expanding into a huge, but controversial, space: crypto. On Aug. 7, a week before the company announced Chriss’s new role, PayPal launched its own cryptocurrency pegged to the U.S. dollar. At Deutsche Bank, analyst Bryan Keane said in a report: “In our view, the new CEO should highly consider lowering adjusted margin expansion and EPS expectations for 2024 in order to make the necessary investments to fix the business.” Analysts do not expect PayPal to provide preliminary 2024 guidance on its Q3 earnings conference call. PYPL Stock: Chriss Surprise Choice PayPal has evolved from an online checkout service to a mobile shopping and person-to-person payments service. Former parent eBay (EBAY), which spun off PayPal in 2015, has ended payment processing ties to PayPal. Chriss took the helm at PayPal on Sept 27. To many analysts, Chriss was a surprise choice to replace Dan Schulman as CEO. Schulman will continue to serve on the PayPal board of directors through May 2024. Chriss doesn’t come from the payments industry, unlike Schulman, a former American Express (AMEX) executive. Venmo Monetization Lags Chriss served as Intuit‘s (INTU) Executive Vice President and General Manager the Small Business and Self-Employed Group, responsible for more than half of the company’s revenue. Also, Chriss led Intuit’s $12 billion acquisition of Mailchimp. Some analysts expect Chrisss to focus on Braintree assets. San Jose, Calif.-based PayPal acquired mobile payments company Braintree and its Venmo peer-to-peer payment service in 2013, Braintree’s Venmo lets friends or families transfer money to each other. It competes with the Cash app from Square-parent Block. According to a TD Cowen report, Venmo still doesn’t generate much revenue except for interest income on stored balances and instant withdrawal fees. But analysts say Venmo is an important path for PayPal to keep winning more checkout share with the Gen Z/Y population. Fixing Braintree A Priority Venmo faces stiff competition from the Square Cash App. Block (SQ) owns Square. At RBC Capital, analyst Daniel Perlin in a report said Chriss was brought in to “drive Braintree into the SMB space and take it international.” At Susquehanna Financial, analyst James Friedman also expects the new PayPal CEO to focus on Braintree assets. “Susquehanna views Braintree as a key to TPV and revenue growth,” Friedman said. “But this currently lower-yielding and lower-margin segment adds substantial pressure to take rates and profitability.” When PayPal reported June quarter earnings, it had 431 million active user accounts, about the same as a year earlier. PayPal Stock: New Apple Partnership In 2022, PayPal shocked Wall Street by shifting away from driving user growth. PayPal had aimed to develop a financial “super-App” for consumers. The digital wallet featured buy now pay later, cryptocurrency trading, bill pay, shopping/rewards tools and savings accounts. But analysts say PayPal has failed to build an effective loyalty program. Then, there’s been investor angst over Apple Pay, which is finally gaining traction among iPhone users. While Apple Pay has a strong advantage with in-store payments, PayPal still holds a wide lead online. PayPal recently announced that its credit and debit cards, including Venmo cards, will be available to add to the Apple Wallet and can be used to make tap payments using an iPhone/Apple Watch or online with Apple Pay. “We believe the news should be a modest relief to investors, as concern around share loss to Apple Pay has been a key debate around PYPL amid Apple Pay’s faster growth, heavier usage among younger consumers, and unique tech advantage,” said Morgan Stanley analyst James Faucette in a report. PYPL Stock: 2024 Estimates Another concern has been persistent transaction margin pressure on PayPal stock. That’s expected to bottom in the September quarter, analysts say. For fiscal 2024, PYPL stock analysts currently estimate EPS growth of 14% to $5.63 on revenue growth of 8.8% to $30.69 billion. Analysts estimate total payment volume growth of 10%, about the same as in 2023. For PayPal and Chriss, the good news is that institutional investors may believe the e-commerce company is fixable, says a Mizuho Securities survey. “The majority of institutional investors (78%) prefer to see management prioritize revenue growth over margin expansion; 64% wish for a combination of the PayPal and Venmo platforms,” said Mizuho analyst Dan Dolev in a report. Follow Reinhardt Krause on X, formerly called Twitter, @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing. YOU MIGHT ALSO LIKE
PayPal's New Boss – WorldNewsEra
