PayPal Holdings reported its Q4 earnings after Thursday’s market close, with results that fell short of expectations. Although the company met earnings per share projections, it underperformed in terms of payment volume and user growth.
The real news from PayPal’s earnings report is not about the numbers but a leadership change. In addition to the earnings announcement, PayPal revealed that CEO Dan Schulman will retire at the end of 2023. This article explores the details of Schulman’s announcement, the current status of PayPal’s business, and what this change could mean for shareholders.
Dan Schulman took the helm of PayPal in 2015 after its spinoff from eBay and has been at the head of the company ever since. Under his leadership, PayPal has added 254 million active users, increased its payment volume by over 370%, and boosted its annual free cash flow from less than $2 billion to more than $5 billion. Despite a recent market downturn that saw its stock significantly underperform, original shareholders have enjoyed a 114% total return, or an annualized 11% return, during Schulman’s tenure.
Schulman will remain on the board of directors but cited his desire to spend more time outside of work as the reason for his retirement. He is involved in considerable non-profit work and has other interests to which he’d like to dedicate more time. It’s worth mentioning that Schulman is 65, so his retirement is not unexpected.
PayPal plans to hire a search firm to assist in finding its next CEO, and Schulman has stated that he is “100% committed” to working with his successor to ensure a seamless transition.
PayPal’s Results: Does The Company Need A Change in Leadership?
PayPal’s recent results showed a combination of both positive and negative outcomes. The company ended 2022 with 435 million active accounts, which is a substantial figure, but only a 2% increase from the previous year. On a brighter note, the payment volume reached $1.36 trillion, though it was slightly below what analysts expected. Despite this, the payment volume still showed a YoY growth of 11% (excluding the winding down of the eBay relationship). However, the fourth quarter saw a 2% decrease in person-to-person (P2P) payment volume, which can be attributed to the ease of in-person payments due to the lifting of COVID-19 restrictions.
PayPal has become a formidable force in the financial industry, generating a whopping $5.1 billion in free cash flow from $27.5 billion in revenue. Additionally, it is now accepted by 79% of the largest 1,500 retailers in North America and Europe, a significant increase compared to its closest competitor. The company is in a solid financial position, boasting $15.9 billion in cash and equivalents, even after spending $4.2 billion on buybacks in 2022. PayPal anticipates 18% growth in earnings-per-share for 2023 and intends to use 75% of its expected $5 billion in free cash flow for further share repurchases.
PayPal’s CEO, Schulman, has been a driving force behind the company’s success, as evidenced by its impressive numbers. Nevertheless, some of his recent decisions have yet to be well-received by shareholders. For example, the company’s consideration of acquiring Pinterest for over $40 billion at its peak, despite the unclear fit within PayPal’s ecosystem. Additionally, the 80% drop in stock prices from its highs has shaken investor confidence in Schulman’s leadership. Furthermore, Schulman’s previous prediction of having 750 million users by 2025, which he later abandoned, further diminished investor trust.
Despite Schulman’s contributions to PayPal, his decision to step down as CEO could benefit investors if a suitable successor is chosen. The payments market still holds massive potential for growth, with an estimated $185 trillion in global payment volume, and PayPal only accounts for less than 1% of it. A new and visionary leader could take PayPal to new heights and tap into this untapped potential.
