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PayPal unveiled a disappointing forecast for its next earnings citing reasons for consumer spending descrease.
On Tuesday, November 9, PayPal Holdings Inc (NASDAQ: PYPL) shares suffered a major beating on Wall Street tanking more than 10%. This happened after PayPal released its earnings report by providing disappointing sales guidelines for the upcoming year. Besides, the company also expressed concerns over consumer spending.
Yesterday was the steepest decline in the PYPL stock after the market crash of March 2020. PayPal also reported its third-quarter earnings for 2021 while missing the revenue estimates. Besides, the company has also lowered its forecast for the current year.
During its Q3 2021 results, PayPal announced a partnership between its Venmo payments app and Amazon.com Inc (NASDAQ: AMZN). Starting 2022, PayPal users will be able to make purchases on amazon.com website and its mobile shopping app directly via their Venmo accounts. Investors at Wall Street cheered this news earlier.
However, the optimism was short-lived by the earnings call. PayPal CEO Dan Schulman gave the guidance for the next year of 2022 projecting the revenue increase by 18%. Schulman said that PayPal’s full-year sales for the next year would stand at $30 billion. This is short of the analysts estimates of $31 billion. During the earnings call, Schulman said:
“We are seeing the impact of global supply chain shortages in our merchant base, consumer confidence is weakened with the absence of stimulus payments, and with the economy reopening, more people may be likely to do their holiday shopping in-store”.
Speaking about the Amazon deal, Schulman further added: “This [the Amazon deal] is obviously a very significant effort in our Venmo monetization efforts. It “marks the beginning of an exciting journey with Amazon, now that we’re no longer constrained by the contractual obligations of the eBay operating agreement.”
PayPal’s Disappointing Performance in 2021
While the overall stock market has been soaring new highs this year, PayPal (PYPL) has given a disappointing performance. The PYPL stock is actually trading at negative 12% year-to-date. On the other hand, the tech-heavy Nasdaq Composite is up 23% so far this year.
The investor sentiment has turned bearish for PayPal over the last year. This happened on the backdrop of the reports that PayPal is in late-stage talks of acquiring social media app Pinterest. Schulman addressed the matter during Monday’s earnings call without actually naming the company.
“Exploring all potential opportunities to enhance shareholder value is our responsibility,” he said. “But obviously, only a select few deals will meet our very strict financial, strategic and capital allocation criteria.”
Market analysts have lowered their price targets for PYPL stock. Analysts at D.A. Davidson have maintained their buy but lowered the price target to $275 from $325. In a note to investors on Tuesday, the analysts wrote that “PYPL was one of the pandemic’s biggest beneficiaries, but the uneven global macro recovery amid supply chain issues as well as tough comps are challenging growth prospects”.