PayPal Drops After Lowering Operating Margin Expansion Forecast

PayPal Holdings Inc. 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.

(Bloomberg) — PayPal Holdings Inc. 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 Monday. That compares with an earlier forecast of growth of about 125 basis points.

The firm’s shares fell 4.1% at 5:02 p.m. in late New York trading. They had gained 6% this year through the close of regular trading Monday.

The lowered guidance comes even after payments volume climbed 12% to $354.5 billion, topping the $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% to 53.1. 

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

“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.

(An earlier version of this story corrected a forecast figure in that story’s third paragraph.)

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