PayPal CEO Dan Schulman plans his exit as earnings return to growth

Only one thing was missing from PayPal Holdings Inc.’s packed fourth-quarter earnings report, which brought upbeat profit performance, a new user metric and the announcement of Chief Executive Dan Schulman’s planned retirement at the end of the year.

Headed into the report, Wall Street was interested in seeing the company’s full-year revenue outlook, but PayPal
declined to provide one for 2023. Gabrielle Rabinovitch, the acting chief financial officer, said on the earnings call that this was a “responsible approach” given “evolving” spending trends.

Executives seemed to be more comfortable in discussing their earnings forecast for the full year, which came in higher than the initial outlook they gave alongside the last report. PayPal has been on a cost-cutting journey for months as it refocuses on its core strengths, but they company also announced last week that it planned to lay off 7% of its staff.

PayPal executives expect about $4.87 in full-year adjusted EPS, up about 18% from a year before, whereas they previously said to expect at least 15% growth in adjusted EPS. Analysts were projecting $4.79 a share on average.

PayPal’s management also now expects 125 basis points of adjusted operating-margin expansion, compared with a prior forecast of at least 100 basis points.

The company is seeing some improving trends but is still showing caution given volatility around forecasting e-commerce trends for the year.

“Our baseline assumption is that discretionary spend will remain under pressure and global e-commerce growth will be slightly positive year over year,” Schulman said on the earnings call. “That said, we are seeing signs that inflation is beginning to cool and it’s logical to expect that discretionary spend versus non-discretionary spend will begin to increase. To be clear, we have not built any recent positive economic news into our forecasts.”

Shares of PayPal were last nearly flat following the earnings call, after being up as much as 8.4% earlier in the extended session, according to Dow Jones Market Data.

Schulman’s announcement that he plans to step down from the CEO post at the end of the year, but maintain his board role, could remove some uncertainty around the stock, according to Wolfe Research analyst Darrin Peller.

Schulman, who has been with the company since 2014 and helped usher it into a life separate from eBay Inc.
told MarketWatch that he wants to devote more time to his outside passions, including politics, academia, nonprofit work, travel and being with loved ones.

He said he was looking to make sure the board has enough time to search for a successor and that there was also enough time for a “smooth transition.” In addition, he wants to ensure the company is in a “strong position” when he leaves.

“The results we delivered in Q4 and the guidance for Q1 and the whole year show that we’re going to have a strong 2023,” he said.

Schulman called the fourth quarter “a real positive inflection point” for PayPal as its operating margin and adjusted earnings per share grew for the first time in a year.

The company on Thursday posted fourth-quarter net income of $921 million, or 81 cents a share, up from $801 million, or 68 cents a share, in the year-earlier period. After adjustments, PayPal earned $1.24 a share, whereas analysts tracked by FactSet were expecting $1.20 a share.

PayPal’s revenue for the fourth quarter rose to $7.38 billion, up from $6.92 billion a year before, and in line with the FactSet consensus, which was for $7.39 billion. The company generated $357.4 billion in total payment volume, or the value of transactions processed on its platform. Analysts tracked by FactSet were anticipating $360.3 billion.

Schulman said on the earnings call that the first quarter “is off to a much stronger start than we anticipated with branded checkout volumes accelerating nicely” from the fourth quarter.

For the first quarter, PayPal executives anticipate about $6.97 billion in revenue, up roughly 9% on a currency-neutral basis and up about 7.5% on a spot basis. Analysts tracked by FactSet were expecting $7 billion.

PayPal’s management anticipates $1.08 to $1.10 in adjusted earnings per share, whereas the FactSet consensus was for $1.07. 

The company introduced a new metric on the earnings call, with Rabinovitch saying that it has about 190 million monthly active unique users. PayPal has been focused lately on generating more engagement out of its more active users rather than striving for absolute growth in users who may not transact much.

Getting annual active users to become monthly active users is “one of our greatest opportunities,” according to Rabinovitch.

The monthly users have an “extremely low churn rate,” Schulman said on the call. “They are extremely engaged, highly satisfied, with high and growing ARPU,” or average revenue per user.

The company conducted $4.2 billion of share repurchases during 2022, representing 82% of its free-cash flow. It has a target for buybacks to be about 75% of free-cash flow in 2023.

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