PayPal Shares Dropped Nearly 6 Percent as Company Warned About Bleak Holiday Quarter

PayPal said lower- and middle-income households had started reducing non-essential spending.

By Reuters | Updated: 4 November 2022 21:32 IST

PayPal Shares Dropped Nearly 6 Percent as Company Warned About Bleak Holiday Quarter

PayPal cut its 2022 adjusted revenue growth outlook to 10 percent from 11 percent forecast earlier

Highlights

PayPal's cautious comments point to its higher exposure, said an analyst
PayPal forecasted bleak e-commerce growth in the fourth quarter
At least 11 other brokerages lowered their price targets after results

PayPal Holdings shares dropped nearly 6 percent in morning trade on Friday after the digital payments heavyweight lowered its annual revenue forecast, warning of a bleak holiday quarter as consumers cut back on discretionary spends.

Decades-high inflation has hit the purchasing power of consumers who also have to contend with the threat of a looming recession.

"Consumers have been trading down from high-end, expensive to more affordable brands while also spending more on non-discretionary products," Wedbush analyst Moshe Katri told Reuters.

PayPal said lower- and middle-income households had started reducing non-essential spending, as they grapple with higher prices of food, energy and gas.

The company's cautious comments point to its higher exposure and sensitivity to discretionary spending, Katri said.

"Given a challenging macro environment, slowing e-commerce trends and an unpredictable holiday shopping season, we are being appropriately prudent in our Q4 revenue guide," Chief Executive Daniel Schulman said in a call with analysts.

The San Jose, California-based company on Thursday cut its 2022 adjusted revenue growth outlook to 10 percent from 11 percent forecast earlier, while also forecasting bleak e-commerce growth in the fourth quarter.

That was in line with commentary from the National Retail Federation (NRF), which earlier this week forecast holiday sales, including e-commerce, to grow at a slower pace this year even as retailers offer steep discounts to attract shoppers and clear out excess inventory.

"E-commerce remains in precarious territory with trends deteriorating through the quarter and an uncertain backdrop, increasing the possibility that not much improvement may materialize next year," KBW analysts wrote in a note and slashed the price target on the stock to $95 (nearly Rs. 8,000) from $115 (nearly Rs. 9,400).

At least 11 other brokerages including JP Morgan, Wedbush and Jefferies lowered their price targets after results.

© Thomson Reuters 2022

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