PayPal (NASDAQ:PYPL) stock plummeted by 9% in early Thursday trading after the company projected a flat adjusted profit for 2024, disappointing investors who had anticipated a revitalization of growth under the newly appointed CEO.
During a post-earnings call, CEO Alex Chriss outlined a strategic plan aimed at streamlining the company’s operations to achieve profitable growth, aiming to alleviate pressure on its shares, which ranked among the poorest performers on the Nasdaq 100 Index (.NDX) in 2023.
While Wall Street analysts acknowledged that the outlook might weigh on shares in the short term, they expressed optimism that the new initiatives would yield positive results over time, benefiting the company in the long run.
J.P. Morgan pointed out that it appears 2024 will be more of a transition year than anticipated, with previously targeted operating leverage expected to materialize after 2024. They anticipate downward pressure on the stock as estimates are revised. Should current losses persist, the stock may shed roughly $6 billion in market value.
Comparing forward price-to-earnings ratios, PayPal trades at 11.64, whereas its rival Block (NYSE:SQ) trades at 21.08, according to LSEG data.
Analysts at Evercore remarked that PayPal is still grappling with the dual challenges of market share erosion and customer attrition in its branded PYPL wallet business.
CEO Chriss stressed that the company is actively pursuing internal and external initiatives to enact change. However, he emphasized that significant transformations do not occur overnight, and it will require time for some of their initiatives to gain traction and have a substantial impact.
Morningstar analysts pointed out that management’s outlook suggests a longer-than-expected journey toward improving growth and profitability. They added, “Management’s commentary implied PayPal won’t see a meaningful improvement in either growth or margins this year.”
Additionally, PayPal announced that it would no longer provide an annual revenue forecast, departing from its regular practice, further muddling its outlook. The company stated that the forecast for 2024 would see “minimal contribution from the innovations” they recently introduced.
Chriss emphasized, “We want to see execution and clear results before embedding these initiatives into our financial outlook.”
Last month, PayPal unveiled new artificial intelligence-driven products and a one-click checkout feature, joining other companies seeking to capitalize on investor enthusiasm for AI.
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