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PayPal Shares Fall 10% Following Decline in Active Users, Tepid Views for Growth

 PayPal Holdings (NASDAQ: PYPL) saw a significant decline in its shares on Thursday, dropping by as much as 11.4% at the opening of the market. By 11:51 a.m. ET, the stock was still down 11.3%.

The primary reason behind this downward trend was the release of PayPal’s quarterly financial report. Although the company’s results slightly exceeded expectations, its guidance for the future unsettled investors and contributed to the stock’s decline.

In the fourth quarter, PayPal experienced a 9% increase in net revenue, reaching $8 billion. This translated to adjusted earnings per share (EPS) of $1.48, marking a 19% rise.

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Compared to analysts’ consensus estimates of $7.88 billion in revenue and EPS of $1.36, PayPal surpassed expectations on both fronts.

The company’s performance was driven by a total payment volume (TPV) of $410 billion, marking a 15% year-over-year increase and a 13% rise in constant currency. Venmo, while still growing, saw a slightly slower growth rate with TPV of $67 billion, up 8%.

PayPal’s active accounts continued to grow modestly, increasing by 2% to 426 million. Monthly active accounts rose by 1% to 224 million, although there was a 0.6% sequential decline. On a positive note, the number of transactions per active account increased to 58.7, representing a 14% rise.

The primary concern for investors following PayPal’s recent performance lies in its weaker guidance for future earnings. In the first quarter, the company anticipates a modest increase in net revenue, projected to rise between 6.5% and 7% year over year on a constant currency basis. Additionally, adjusted EPS is expected to grow by “mid-single digits.”

Looking at the full-year guidance, management forecasts adjusted EPS to align with the $5.10 figure generated in 2023. A closer examination reveals that the fastest-growing segment of PayPal’s total payment volume (TPV) is its PSP unbranded card processing services for merchants, which expanded by 29%. However, these transactions yield lower margins compared to payments made through PayPal or Venmo, thereby putting pressure on profits.

PayPal is currently undergoing a transformation, yet investors remain wary of the ongoing consumer shift towards alternatives like Apple Pay, which directly competes with PayPal’s services. While many shareholders are supportive of PayPal’s success, some are hesitant to increase their holdings until they observe more significant progress from management in addressing these challenges.

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