Key facts:
PayPal notes that dollar inflation has had a negative impact on its performance.
Other financial alternatives, such as Square, Klarma and Bitcoin, have taken PayPal away from customers.
PayPal currently registers one of the worst daily performances that the company has ever reported in its entire history. With its shares trading today at prices they had achieved three years ago, all indications are that investors in the electronic payments giant are disappointed by the company’s performance and its less than optimistic forecasts. But what is the reason for this collapse?
The slide into the red began for PayPal Holdings a few weeks ago, when company executives published the profits of the fourth quarter of 2021 and its forecasts of future income. Although the company managed to capture more revenue than expected by the end of last year – some 6.92 billion dollars – the reality is that their growth expectations failed to reach the 17.9% sponsored by the board and analysts.
Worse still, when we focus on PayPal’s expectations for 2022, they promised growth of only 6% for the first quarter of this year in one course. While experts in the field expected that the company would intend to grow at least 11% compared to the profits they receive today.
As if that were not enough, PayPal also claimed to have lower user growth expectations for this 2022. According to the directive, inflation would be penalizing the value of their services, reducing consumer spending. In the same way, they believe that the problems in the supply chains complicate achieving better yields for this year. In general, they consider that the current geopolitical tensions —led by Russia’s intentions to invade Ukraine— do not allow us to predict a better future for their actions and business growth.
Although PayPal’s analysis sounds realistic and its numbers are not negative, the fact that the company has been decreasing its market expectations for several quarters makes investors lose confidence in the future of the platform. PayPal also confirmed to have closed some 4.5 million accounts after uncovering “bad actors” taking advantage of its incentive programs, a practice that only cements the reputation that the company censors its users.
Faced with these data, the behavior of the market was forceful. Since the company’s financial information was published, the paypal shares They have lost $50 each. Trading at a price of 104 dollars per unit, the platform’s shares now have the same value as they did almost three years ago, specifically in March 2019.
In a nutshell, the profits achieved in the COVID-19 quarantine period were erased from the shares, one of the most prolific and favorable seasons for PayPal. And although the fall of this digital finance giant is striking, it is not the only service that has become popular since 2022 and has had a resounding fall. Platforms like Netflix, Spotify and the Meta firm They have also recorded a reduction in their contributions.
What is affecting PayPal: increased competition or the economic crisis?
According to Dan Schulman, CEO of PayPal, the blame for this behavior lies with inflation in the United States and geopolitical tensions worldwide. Undoubtedly, these two elements have affected different companies and traditional markets, even having an impact on the price of cryptocurrencies.
Furthermore, with a weaker dollar and a world that expects more and more inflation in its economies, it is not surprising that people are reducing their expenses and looking for new alternatives to protect their finances. For example, even the millionaires of Latin America are taking shelter in Bitcoin to maintain their fortunes, as we have reported in CriptoNoticias.
So this element could be undermining PayPal’s turf. However, the variables are multiple, since the increase in competition and the loss of key customers have also had a huge impact on the annual growth of the payment system. Last year, eBay reported that would stop working with PayPal and would open up to embrace digital banking.
This resulted in a severe blow to the digital transaction platform. Additionally, the appearance of wallets such as Klarma, Revolut and Square seem to be capturing more and more the attention of young consumers who are looking for new alternatives for online payments, experts point out in the matter.
Bitcoin has also helped break the PayPal empire, by becoming another international payment alternative enabled for all types of users. And it is that, by the end of last year, the cryptocurrency was already registering 10 times more volume of money transfers than PayPal itself.
There are figures that indicate that not all financial services are decreasing in this 2022, but rather that the bulk of users are experimenting with other options and migrating to platforms that adapt to their expectations. In this sense, bitcoin, with its characteristics resistant to censorship and capable of safeguarding value, becomes an attractive asset for clients.