PayPal touts turnaround plan after results beat fails to impress

By Utkarsh Shetti

May 5 (Reuters) – PayPal’s new CEO Enrique Lores outlined a plan to streamline its organizational structure and reduce costs after the digital payments firm’s first-quarter results left investors underwhelmed.

The company’s shares closed down 7.7% on Tuesday despite profit and revenue coming in above Wall Street expectations.

PayPal has been navigating intense competition in the payments space after the entry of Big Tech firms and newer entrants such as Klarna and Stripe.

The firm had a legacy lead from a pandemic-era surge in digital payments, but growth has since cooled. Its shares are down more than 80% from record highs in mid-2021.

Lores, who took charge at PayPal in March, outlined plans to leverage artificial intelligence to streamline operations across the company and eliminate duplication in workforce layers, but did not provide additional details.

PayPal said these initiatives would save about $1.5 billion over the next two to three years, adding it will reinvest that amount to drive new growth.

“We view this print as a placeholder until the Board makes the call on a more definitive strategy in the coming weeks/months,” Evercore ISI analysts said in a note.

Since Lores took over, the company has said it will reorganize its business into three operating units, including a separate Venmo-focused division.

Its share slide has reportedly drawn takeover interest for some or all of its assets. Some analysts have said breaking up the company could drive near-term shareholder value.

RESULTS BEAT

Though consumers have been grappling with inflationary pressures and economic uncertainty exacerbated by the Middle East conflict, wealthier households have largely underpinned spending resilience.

PayPal’s revenue rose 7% to $8.35 billion, beating analysts’ average estimate of $8.05 billion, according to data compiled by LSEG. On a currency-neutral basis, total payment volumes also jumped 8% over a year ago to about $464 billion.

It reported adjusted profit of $1.34 per share for the three months ended March 31, also above an estimate of $1.27 per share.

Total payment volumes at its higher-margin online branded checkout segment grew 2% in the first quarter.

In a filing late on Tuesday, PayPal disclosed it had received requests in March from the U.K. Financial Conduct Authority for information regarding its agreements with Visa and Mastercard relating to funding and use of its digital wallet.

(Reporting by Utkarsh Shetti in Bengaluru; additional reporting by Arasu Kannagi Basil; Editing by Pooja Desai)