PayPal’s shares fell nearly 10% on Tuesday after the digital payments giant reported a sharp slowdown in its unbranded card processing business growth and a shrinkage in its operating margin during the fourth quarter. The company’s unbranded payments, which involve transactions for other firms rather than PayPal itself, had experienced strong growth in recent years but traditionally operated on low margins due to intense competition.
Under CEO Alex Chriss, PayPal has focused on “profitable growth” and revamped its pricing strategy, particularly for its Braintree product (the non-PayPal branded checkout service), which has led to some customer losses. In the fourth quarter, total payment volume growth for unbranded payment processing slowed to just 2%, a significant drop from 29% the previous year. Despite this, the focus on profitable growth has improved overall profitability.
Branded product growth, which includes services like Venmo where consumers and merchants interact within PayPal’s platform, also fell short of analysts’ expectations, increasing by only 6%, below the expected 7%. This outcome overshadowed an optimistic forecast for 2025 profit growth that surpassed Wall Street estimates.
The results come amid increasing competition in the digital payments space, with technology giants like Apple and Google, along with traditional card networks like Visa and Mastercard, expanding into PayPal’s core market. This competition has intensified as more consumers turn to mobile payment options such as Google Pay and Apple Pay.
Despite a contraction in adjusted operating margins by 34 basis points to 18% in Q4, PayPal’s shift towards high-margin products helped the company close the year with an expansion in margins, rising 116 basis points to 18.4%.
CEO Chriss, who took over in late 2023, emphasized the company’s commitment to focusing on high-margin products and optimizing its offerings for better profitability. PayPal’s new initiatives include a “one-click” checkout feature called Fastlane and forming new partnerships to strengthen its market position.
Looking ahead, PayPal expects its adjusted profit for the full year to grow between $4.95 and $5.10 per share, surpassing Wall Street’s estimated $4.90 per share. The company reported an adjusted profit of $1.19 for the fourth quarter, exceeding estimates of $1.12. Its revenue for Q4 rose by 4% to $8.4 billion, and total payment volume increased by 7%.