PayPal Earnings Show Refresh Is Working. Why the Stock Is Dropping Anyway?

PayPal Holdings, Inc. (PYPL) reported its fourth-quarter earnings on February 7, 2025, with mixed results that have left investors scratching their heads. While the company's revenue and net income beat estimates, its adjusted earnings per share (EPS) missed the mark, leading to a significant drop in the stock price. In this article, we will explore the key metrics that indicate a successful refresh strategy, the concerns raised by investors, and why the stock is dropping despite the positive earnings report.

Key Metrics Indicate a Successful Refresh Strategy

PayPal's earnings report shows that the company's refresh strategy is working, with several key metrics pointing to improved performance:

1. Revenue Growth: PayPal's revenue grew by 4% year-over-year to $8.37 billion, beating analyst expectations of $8.26 billion. This growth demonstrates that the company's focus on core markets and products is paying off.
2. Active Accounts: PayPal's total active accounts increased by 2.1% to 434 million, with a sequential increase of 0.6% or 2.6 million. This growth shows that the company's marketing efforts and product focus are attracting and retaining users.
3. Payment Transactions per Active Account: This metric increased by 3% on a trailing 12-month basis to $60.6. This indicates that PayPal's users are more engaged and transacting more frequently, which is a positive sign for the company's refresh strategy.
4. Total Payment Volume (TPV): TPV increased by 7% year-over-year to $437.8 billion. This growth shows that PayPal's platform is facilitating more transactions, which is a key indicator of success for a payments company.



Investor Concerns and Stock Drop

Despite the positive earnings report, PayPal's stock price dropped significantly following the announcement. This can be attributed to several concerns raised by investors:

1. Unbranded Card Processing Business: Investors are worried about the decline in total payment transactions at Braintree, PayPal's payment processing subsidiary, which reported lower volumes in the fourth quarter. This decline is part of PayPal's strategy to focus on value over price, but it raises concerns about the sustainability of this business segment.
2. Customer Retention: There are questions about PayPal's ability to retain customers, particularly high-volume customers like Uber and Spotify, which could lead to a loss of transaction volume and revenue. The company's focus on price-to-value strategy might not be enough to retain customers who are primarily driven by cost considerations.
3. Guidance: PayPal's guidance for the first quarter and 2025 called for adjusted EPS of $1.15-$1.17 and $4.95-$5.10, respectively, which missed analyst estimates. This has raised concerns about the company's ability to meet expectations in the coming quarters.

Looking Ahead

PayPal's earnings report indicates that the company's refresh strategy is working, with key metrics showing improved performance. However, investors remain concerned about the unbranded card processing business, customer retention, and the company's guidance. As PayPal continues to execute its refresh strategy and address these concerns, it will be crucial for the company to communicate its progress effectively to regain investor confidence. With a strong balance sheet and a history of innovation, PayPal has the potential to turn things around and deliver value to shareholders in the long run.

In conclusion, PayPal's earnings report shows that the company's refresh strategy is working, but investors remain cautious due to lingering concerns. As PayPal addresses these issues and communicates its progress, the stock may have the potential to rebound and deliver value to shareholders.