PayPal cuts costs as revenues slow in Q2 22

PayPal cuts costs as revenues slow in Q2 22

PayPal saw a 9% rise in both revenues and total payment volume (TPV) in its Q2 2022 earnings to $6.8bn and $339.8bn respectively, however it announced $900m of cost-cutting measures driven by activist investor Elliot Management.

PayPal quarterly cross-border value and share of total payment volume shows value is seeing year-on-year reductions while cross-border share of TPV is consistently falling

The company has seen slowing growth across revenue and TPV, particularly in the US where TPV grew by 16% compared to 42% in Q2 2021. The end of its eBay partnership continues to play a role, causing a 4% drag, although this is expected to vanish completely by Q4.

Looking to cross-border, volumes declined 12% YoY, while cross-border’s share of overall TPV also decreased to 13%. Notably travel recovery did not play a significant role in cross-border trade volumes, as much of PayPal’s cross-border activity is from ecommerce.

Meanwhile, active accounts increased 6% YoY to 429 million, but new active accounts dropped to 400,000, although PayPal has not yet lowered its projected 10 million for the year. By contrast, transactions per active account rose 12% in the quarter, reaching 48.7.

PayPal’s slowing growth in Q2 22 prompts cost-cutting measures

This slowing growth has prompted a move by Elliot Management, which is now believed to have a $2bn stake in PayPal. The company has agreed a cost-saving scheme, with the two entering into an information sharing agreement that it is hoped will aid greater profitability and return of capital to investors.

Nearly 50% of the reductions will come from transaction-related expenses, although there will also be a headcount reduction. PayPal wants to expand its operating margin in FY23 by reinvesting savings into “high-conviction growth opportunities”, including its checkout and digital wallet offerings (including Venmo), as well as its payment gateway service Braintree.

Looking forward, Q3 revenue is expected to be $6.8bn, up 10% YoY, while FY22 revenue and TPV are expected to increase by 10% and 12% YoY, respectively. Diversification, new initiatives, PayPal’s merchant pipeline and the dissipating impact of eBay are all expected to improve the company’s position by the end of the year.

With bold restructuring and savings plans in place, investors will likely be scrutinising whether PayPal can fulfil its promises to cut costs and boost its operating margin next year (specifically, early 2023, when the company will hold its next investor day). We’ll be keeping up with all the developments, so stay tuned.

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