PayPal Stock Plunges 13%: What Went Wrong and What's Next?

PayPal Holdings, Inc. (PYPL) shares took a significant tumble this week, dropping by 13% following the release of its fourth-quarter financial report. The decline in stock price can be attributed to two primary factors: subpar guidance and slowing branded checkout growth. This article will delve into these factors, their implications for PayPal's long-term fundamentals, and the company's strategies to address the competitive threat posed by Apple Pay.



Subpar Guidance

PayPal's guidance for the first quarter and full year fell short of investor expectations, sparking concern about the company's growth prospects and profitability. The company expects net revenue to increase between 6.5% and 7% year over year on a constant currency basis, with adjusted EPS expected to increase by "mid-single digits." Full-year guidance was even more worrisome, as management expects its adjusted EPS to be in line with the $5.10 it generated in 2023. This cautious outlook raised concerns about the company's ability to maintain its historical growth rate and market position.

Slowing Branded Checkout Growth

PayPal's branded checkout button, a key driver of its revenue, grew at a slower pace than expected. The company reported a 6% annual growth rate for branded checkout, which was only 1% higher than the same quarter last year. This deceleration in growth, coupled with the lack of a clear path to acceleration in 2025, disappointed investors who were hoping for a more robust performance. The slowdown in branded checkout growth may be a sign that PayPal is facing increased competition from other payment methods, such as Apple Pay, which is integrated with Apple's iOS ecosystem and offers ease of use.



Addressing the Competitive Threat from Apple Pay

PayPal is addressing the competitive threat posed by Apple Pay in several ways. First, the company is focusing on profitable growth, prioritizing transactions that carry an attractive margin. This strategy aims to maintain market share while ensuring the company's financial health. Second, PayPal is working to accelerate the growth of its branded checkout button, which is a key differentiator from Apple Pay. While the 6% annual growth in branded checkout TPV was only 1% higher than the same quarter last year, PayPal's CFO Jamie Miller guided that branded checkout TPV is expected to grow about mid-single digits in 2025. This indicates that PayPal is committed to maintaining and growing its branded checkout market share.

Additionally, PayPal's acquisition of Venmo has helped it tap into the growing market of younger consumers who prefer seamless and convenient digital payment solutions. Venmo's user-friendly interface and strong presence among millennials have expanded PayPal's market share in the peer-to-peer (P2P) payment space. Furthermore, PayPal's expansion into cryptocurrencies has allowed it to attract customers interested in this emerging technology and open up new revenue streams. By enabling users to buy, hold, and sell various cryptocurrencies within the PayPal app, the company has positioned itself as a forward-thinking player in the digital payment space.



In conclusion, PayPal's stock price decline this week reflects investors' concerns about the company's slowing growth, cautious guidance, and increased competition from Apple Pay. While these factors align with PayPal's long-term fundamentals, the company is taking steps to address these challenges and maintain its market position. By focusing on profitable growth, accelerating branded checkout growth, and leveraging strategic partnerships, PayPal is well-positioned to navigate the competitive landscape and capitalize on emerging opportunities in the digital payments space. As the company continues to execute on its strategic initiatives, investors should monitor its progress and reassess their positions accordingly.