Shares in digital payments giant PayPal fell nearly 25% after reporting disappointing fourth quarter results. Investors were also unsettled by the anaemic earnings guidance for 2022.

The group has been negatively impacted by cost of living pressures on consumer spending, particularly among those on lower incomes. Ongoing supply chain issues have also been a problem. The group reduced its profit guidance for the current quarter, and slashed forecasts for full-year revenue growth.

Investors may fear that, as well as a wider slowdown in consumer spending, the company is suffering the consequences of an accelerated shift to digital payments during the pandemic. This could result in slowing growth in the coming years, as all that extra revenue was effectively brought forward.

Pay Pal expects $0.87 per share in first quarter earnings, this is significantly below consensus estimates. New accounts, which grew at a rapid rate during the pandemic appear to be increasingly more difficult to find. In 2022, total accounts are expected to grow by only 15 million to 20 million, implying that PayPal will end the year with a total customer count of 441 million to 446 million.

PayPal’s net revenue growth rate for the first quarter of 2022 is expected to be only 6%. The group also reported 4.5 million illegitimate accounts it had to remove from the numbers.

PayPal is losing business at a faster than-anticipated rate from its former owner eBay, which is moving to its own separate payments platform. However despite the short-term uncertainty, there are some indications of a more encouraging longer-term outlook.

During the past year, Pay Pal has evolved rolling out new features including a Venmo credit card and cryptocurrency trading. There is also significant scope for the group to expand into new international markets, and the phenomenal growth of Venmo, (a digital wallet) is set to continue as Amazon customers in the US are now able to pay with Venmo for purchases on Amazon.com, and the mobile Amazon mobile shopping app.

Venmo (a mobile payments service founded in 2009 and owned by PayPal since 2012), is benefiting from its partnership with Amazon.

PayPal’s CEO Dan Schulman said the partnership is ‘just at the start of Venmo’s commerce journey’. Given Amazon’s massive scale (its US retail ecommerce sales are projected to hit $376.57 billion this year) the partnership is a huge opportunity for Venmo to expand the use of its checkout functionality and grow its payments volume.

In September 2021, PayPal acquired Japanese buy now pay later firm Paidy. PayPal is looking to leverage Paidy to increase its market share in the country and the region. Paidy’s platform offers a monthly payment instalment service, which enables shoppers to make purchases online and then pay for them each month in a consolidated bill.

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