PayPal's shares dropped by 5% in premarket trading on Tuesday as the company's operating margin contracted in the fourth quarter, raising concerns about a muted recovery despite a promising profit forecast for 2025.
Investors have been apprehensive about the challenges to PayPal's profit margins, which have lagged due to increased competition and reduced spending post-pandemic.
New competitors like Apple and Google have entered PayPal's market, while traditional players such as Visa and Mastercard have expanded their digital payment services.
Since assuming the role in late 2023, PayPal CEO Alex Chriss has emphasized achieving "profitable growth" as the company's new direction, focusing on enhancing branded products, pricing strategies, and cost efficiency.
Despite a 34 basis points decrease in adjusted operating margins to 18% in Q4, PayPal's efforts in pursuing profitable growth led to a year-end increase to 18.4%.
Chriss noted, We aimed in 2024 to sharpen our focus, enhance execution, and reshape the business, highlighting progress in product enhancements and pricing strategies.
PayPal projects a full-year adjusted profit in the range of $4.95 to $5.10 per share for 2025, surpassing Wall Street estimates. Transaction margin dollars grew by 7% for the year and are expected to increase by 4% to 5% in 2025.
Consumer spending has remained robust, with Americans continuing to spend on travel and online shopping despite concerns over interest rates and savings reductions.
PayPal anticipates an adjusted profit of $1.15 to $1.17 per share for the first quarter, exceeding expectations.
In the fourth quarter, PayPal's net revenue rose by 4% to $8.4 billion, and total payment volume increased by 7%, while the adjusted profit of $1.19 beat estimates. The company saw a remarkable 40% surge in shares in 2024, bucking a trend of annual declines.