By Manya Saini and Mehnaz Yasmin
(Reuters) -PayPal shares fell 9% in early trading on Thursday after it forecast a flat adjusted profit for 2024, disappointing investors who had hoped the payments firm's newly appointed CEO will reignite its growth.
On a post-earnings call, CEO Alex Chriss laid out a strategic plan to turn the company leaner in its pursuit towards profitable growth as well as ease pressure on its shares, which were one of the worst performers on the Nasdaq 100 Index in 2023.
Wall Street analysts said the outlook will weigh on shares in the near term but the new initiatives would likely bear fruit in time and benefit the company.
"It's clear that 2024 will be more of a transition year than we were expecting, with previously targeted operating leverage coming after 2024. We expect pressure on the stock as estimates come down," J.P.Morgan wrote in a note.
At current levels, if losses hold, the stock would lose roughly $6 billion in market value.
It trades at a forward price-to-earnings ratio - a widely-used benchmark for valuing stocks which compares its share price with projected future earnings - of 11.64, compared with rival Block's 21.08, according to LSEG data.
"PayPal (NASDAQ:PYPL) continues to confront the twin challenges of market share and customers' loss in its branded PYPL wallet business," analysts at Evercore wrote in a note.
'MOVING THE NEEDLE'
"We're doing a lot of things to drive change internally and externally. However, nothing happens overnight. It will take time for some of our initiatives to scale and move the needle," said Chriss in a conference call.
Analysts at Morningstar said management's outlook suggests the road towards improving growth and profitability will be longer than expected.
"Management's commentary implied PayPal won't see a meaningful improvement in either growth or margins this year," they added.
Paypal also said it will no longer provide an annual revenue forecast, a departure from regular practice and further clouding its outlook.
The California-based fintech also said the forecast for 2024 will see "minimal contribution from the innovations" they recently laid down.
"We want to see execution and clear results prior to embedding these initiatives into our financial outlook," Chriss said.
Last month, PayPal said it was launching new artificial intelligence-driven products as well as a one-click checkout feature, joining companies trying to tap investor enthusiasm for AI.