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PayPal shares dive 19% after company blames inflation for weak guidance

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PYPL

Shares of PayPal were down more than 19% in premarket trading Wednesday, a day after the company provided weak guidance that it blamed in part on inflation.

PayPal reported mixed results for the fourth quarter, which were short on earnings per share estimates at $1.11, ex-items vs. $1.12 expected. It beat on revenue estimates, though, reporting $6.92 billion vs. $6.87 billion expected, according to Refinitiv.

But it also said it expects first-quarter non-GAAP earnings per share of 87 cents, while analysts had been expecting $1.16. It also anticipated that revenue would grow about 15% to 17% for the full year 2022, on a spot and foreign-currency-neutral basis. Analysts expected year-over-year revenue growth of 17.9% for 2022.

The PayPal logo displayed on a smartphone.
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In an interview with CNBC, PayPal CEO Dan Schulman said the company took “a measured approach” to guidance, but expects revenue to accelerate in the second half of the year.

He pointed to challenges including the transition of former owner eBay to its own payments platform and “exogenous factors” like inflation bringing down consumer spending and supply chain issues “disproportionately impacting” cross-border payments.

PayPal also missed user growth targets due in part to 4.5 million “illegitimate” accounts that joined the platform, which “affected our ability to achieve our guidance in the quarter,” CFO John Rainey said. The company also walked back its user growth goals, which Rainey said was a “choice” to focus on “sustainable growth and driving engagement.”

Canaccord Genuity Capital Markets analysts, who maintained a buy rating on the stock but lowered their price target from $315 to $215, wrote in a note Tuesday that PayPal’s challenges are mainly “short-term headwinds.”

“While the pace of growth in net new accounts is expected to moderate in 2022, we are seeing a steady increase in user engagement metrics and expect to see more marketing behind driving engagement in 2022,” the Canaccord note said. “And already PYPL has shown that it remains nimble despite its size in exploiting rapidly emerging opportunities: scaling an impressive Buy Now Pay Later (BNPL) offering and launch of equity trading.”

The analysts expressed optimism about the previously announced Venmo partnership with Amazon, which they expect “could be the largest single catalyst for PYPL in 2022.”

BTIG analysts, who downgraded the stock to neutral and removed their $270 price target, said in a note Tuesday that PayPal is now a “‘show me’ story.” They cited new areas of “uncertainty” including the “significant shift in the company’s approach to customer acquisition and engagement.” They also pointed to executive’s claims that the full-year forecast was cautious due in part to inflation and supply chain issues, which the analysts said “offered a sharp contrast with the more upbeat annual outlooks offered recently by the card networks.”

-CNBC’s Kate Rooney contributed to this report.

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WATCH: PayPal CEO says company will have a measured approach for guidance in 2022

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