Pre-market trading saw a significant drop of 11% in PayPal (NASDAQ:PYPL) shares on Thursday following the announcement of a flat adjusted profit forecast for 2024. This news disappointed investors who were anticipating 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 and alleviate the downward pressure on its shares. This move was crucial as PayPal’s shares were among the poorest performers on the Nasdaq 100 Index in 2023.
While Wall Street analysts acknowledged that the outlook might dampen investor sentiment in the short term, they expressed optimism that the company’s new initiatives would eventually yield positive results.
J.P. Morgan commented in a note, “It’s evident that 2024 will be more of a transition period than initially anticipated, with anticipated operating leverage postponed until after 2024. We anticipate downward pressure on the stock as estimates are revised downward.”
At current levels, if losses persist, PayPal’s market value could potentially decline by approximately $6 billion. Comparing valuation metrics, PayPal’s forward price-to-earnings ratio stands at 11.64, considerably lower than its rival Block’s ratio of 21.08, according to LSEG data.
CEO Alex Chriss emphasized during a conference call, “We are implementing various initiatives to drive change both internally and externally. However, significant transformations take time to materialize. The impact of our initiatives will gradually become more apparent.”
Analysts at Morningstar noted that management’s outlook suggests a longer-than-expected journey towards improving growth and profitability. They added, “Management’s statements indicate that PayPal may not experience significant improvements in either growth or margins this year.”
Additionally, PayPal announced its decision to discontinue providing an annual revenue forecast, deviating from its usual practice and further adding to the uncertainty surrounding its future performance.
Chief Financial Officer Jamie Miller explained, “Considering the significant changes underway at the company, we believe it is prudent to provide revenue guidance one quarter ahead and offer updates as the year progresses.”
Featured Image: Unsplash @ Marques Thomas
Author Stephanie Bédard-Châteauneuf 
