Venmo owner PayPal is one of the worst stocks of 2022 | CNN Business
Sending money to pay for things through Venmo can be all the rage among smartphone-addicted millennials and Gen Zers. But that hasn’t been enough to boost Venmo’s owner PayPal lately. The digital payments giant is one of the worst performing stocks on the S&P 500 this year. Shares have plunged more than 55% so far in 2022.
PayPal (PYPL) warned in February that its sales and new active user growth would be lower than expected. Chief Financial Officer John Rainey said the combination of inflationary pressures, supply chain issues and the lack of any further stimulus from the federal government was hurting consumer sentiment and spending.
PayPal announced its first quarter results after the closing bell on Wednesday. Sales were up 8% from a year ago, slightly ahead of forecast. Year-over-year earnings fell sharply and forecasts came in below estimates. The stock was a little higher after hours.
To complicate matters for PayPal, Rainey plans to leave the company soon after seven years there. The tech company surprised Wall Street earlier this month by announcing that Rainey would become Walmart’s new chief financial officer (WMT) and would leave PayPal at the end of May.
The company is looking for a permanent replacement. But until one is found, Gabrielle Rabinovitch, PayPal’s senior vice president, corporate finance and investor relations, will serve as interim chief financial officer.
“PayPal is in some kind of awkward purgatory with the departure of John Rainey,” said Andrew Bauch, principal analyst at SMBC Nikko Securities America.
Investors are also concerned that the company may have to downgrade its outlook again.
“This looks like a situation where current management may need to reset guidance further in order to set the bar lower for the arrival of a new chief financial officer,” said Jordan Kahn, chief investment officer of ACM Funds.
Kahn said his company sold PayPal stock in January ahead of the last earnings report due to growth concerns. But he still likes the title’s long-term prospects and said he was waiting for the right time to potentially return.
Another concern? Consumers are starting to return to brick-and-mortar retailers to shop as fears over Covid ease thanks to vaccinations and less deadly – albeit more transmissible – variants of the virus.
This means consumers may look to make more purchases with credit and debit cards or cash at physical stores and make fewer digital payments for online purchases, said Christopher Vecchio, senior strategist at DailyFX. .
The competition is also intensifying and that does not help. PayPal and Venmo are in a fierce battle for users with Block (SQ), the parent company of Square and Cash App, as well as Zelle, the fintech owned by a consortium of seven of the country’s largest banks, including Bank of America ( BAC) and JPMorgan Chase (JPM).
PayPal could benefit, however, if Block CEO Jack Dorsey seeks further involvement in Twitter following the acquisition of Elon Musk. Dorsey was CEO of both companies and some believe a distracted Dorsey was good for PayPal.
“If Dorsey became a part-time CEO who was back on Twitter, it could help PayPal and open the door for them to gain traction,” Vecchio said.
Kahn agreed that Dorsey focusing more on Twitter would be “ideal for PayPal,” but he thinks that’s unlikely to happen. Which means PayPal will have to work harder to revitalize user growth.
Its gloomy outlook could push the company to turn to more acquisitions to rejuvenate its sales and profits. Late last year there was speculation that PayPal was looking to buy social media company Pinterest (PINS), but PayPal said no deal was in the works.
Some analysts have also suggested that PayPal could play a role for struggling online brokerage Robinhood, which just announced layoffs on Tuesday. Bauch said he wouldn’t be surprised to see PayPal try to engage in “creative mergers and acquisitions” to drive growth.
The question is whether PayPal investors, who have put the stock firmly in the Wall Street penalty box, would approve.
But Kahn said the good news is that after this year’s market crash, most fintech companies are in the same boat as PayPal. That means they’re all much cheaper – and potentially ripe for a takeover.
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