Is PayPal Doomed or Due For a Rally?
The once mighty tech giant is suffering from a dozen maladies.
“PayPal to Cut Around 2,500 Jobs as Rivals Snag Market Share,” reported Paige Smith for Bloomberg last week.
“PayPal Holdings Inc. will reduce its workforce by about 9% as Chief Executive Officer Alex Chriss, who took over in September, grapples with rising competition, profit pressures, and a raft of analyst downgrades,” began Smith gloomily. “PayPal, which employed around 29,900 workers at the end of 2022, announced a similar round of cuts last January. The latest move will affect about 2,500 workers.”
“Shares of the payments giant have plunged more than 20% over the past year as earnings faltered and the company lowered its full-year guidance for adjusted operating margin,” noted Smith, adding that “PayPal named Chriss last year to replace Dan Schulman.”
The bad news for PayPal and its executives continued this week.
“PayPal’s earnings outlook disappoints as CEO says he’s looking to rebuild trust,” revealed Emily Barry on February 7 for MarketWatch.
“The payment-technology company is in the midst of a transition under its new leadership team as it faces stiff competition in the market for online payments and navigates shifts in its business mix that have been weighing on margins,” Barry noted.
PayPal has struggled in particular to recover since October 2022, when a controversial updated user agreement sparked a major backlash on social media.
The updated policy, which was set to go into effect on November 3, 2022, would have given PayPal the power to seize deposited funds if the user was found to be “promoting misinformation” which included “editing, posting, or publication of messages, content, or materials that meet certain criteria.”
Along with this unwelcome addition to the prohibited activities section of PayPal’s user agreement, the company also added the right to impose penalties in the form of “liquidated damages of $2,500.00 per violation, which would be withdrawn directly from their account.”
“The update immediately sparked uproar online on the right, marking the latest instance that a major online payment service has faced heat over its moderation practices,” admitted Cristiano Lima-Strong for the Washington Post on October 10, 2022.
But it wasn’t just on the right.
The new user agreement caused an absolute uproar. The prospect of a bank seizing a customer’s deposits, when they have been neither convicted of nor even charged with a crime, didn’t exactly thrill depositors, either — or, it would seem, investors.
“It’s hard for me to openly criticize a company I used to love and gave so much to,” tweeted former PayPal president emeritus David Marcus on October 8, 2022. “But PayPal’s new AUP goes against everything I believe it. A private company now gets to decide to take your money if you say something they disagree with. Insanity.”
“Orwellian,” agreed FCC Commissioner Brendan Carr. “Paypal reserves the right to take your money if you post a message that Paypal decides is ‘misinformation.’ This is why it is so vital that state and federal legislatures pass laws that prohibit discrimination by tech companies and protect free speech.”
The kerfuffle was titanic and PayPal scrambled to recover, calling the updated user agreement an error.
A company spokesperson said the controversial user agreement “included incorrect information related to company policy.”
“PayPal is not fining people for misinformation and this language was never intended to be inserted in our policy,” added the spokesperson. “Our teams have made appropriate updates to correct these inaccuracies and we apologize for any confusion this has caused.”
The spokesperson added that the company “has long stated that PayPal can take funds of up to $2,500 or local equivalent from an account for each violation of the Acceptable Use Policy.”
Needless to say, this excuse — “it’s not true and even if it was, it’s no big deal” — failed to appease nervous depositors and investors. Despite the management shake-up which soon followed, PayPal hasn’t yet recovered.
It didn’t help matters that PayPal was, even then, defending itself from a class-action lawsuit brought by depositors claiming their funds were seized under the auspices of overly-vauge user policies.
“PayPal stole users’ money after freezing, seizing funds, lawsuits allege,” reported Tim De Chant for Ars Technica on January 14, 2022.
That lawsuit appears to have been sent to arbitration in June of that year, but other cases are pending. PayPal has settled similar suits in the past.
Nor have the last few years been good to PayPal.
“PayPal Holdings (PYPL) stock looks set to close in the red in 2023, which would mark the stock’s third consecutive year of losses,” marveled Mohit Oberoi for Nasdaq on December 29, 2023. “The fintech company’s shares had previously fallen 62% in 2022, notching its worst yearly performance since its 2015 split with eBay (EBAY).”
“Prior to that, 2021 was no better, as PayPal lost almost a fifth of its market cap in the year,” added Oberoi. “Investors can take little heart from the fact that the 2023 drawdown in PayPal shares was the shallowest that we have seen in the last three years, and the stock rebounded from multi-year lows that it hit during the year.”
Will PayPal’s new captain be able to right the ship?
Or is the tech giant on its way to obscurity?
(contributing writer, Brooke Bell)