Omicron, inflation and a lack of government stimulus have some Venmo users nervous about spending money from their digital wallets. That’s bad news for Venmo owner PayPal — and a potential warning sign for consumer spending in general.
PayPal (PYPL) executives warned during the company’s earnings call with analysts Tuesday that its forecasts for revenue and new active users would not be as strong as the company and Wall Street had hoped. Shares of PayPal (PYPL) plunged more than 25% on the news.
Chief Financial Officer John Rainey said that “the impact of Omicron and the effect of inflationary prices combined with lack of stimulus, is having an impact on spending” and that this is “most pronounced” on lower income users.
“The persistence of inflationary effects on personal consumption, labor shortages, supply chain issues and weaker consumer sentiment have led us to adopt a more cautious outlook,” he added.
Rising prices, coupled with continued worries about the broader economy, have weighed on consumer confidence lately. Even though wages continue to rise at a healthy clip, some consumers may simply be tapped out.
Analysts at Mizuho Americas said in a report Wednesday that the “disappointing” outlook “marks a return to earth” for PayPal “following the Covid sugar rush” that has boosted demand over the past two years.
PayPal CEO Dan Schulman also noted that small business customers are being hurt by supply chain woes and other “exogenous factors.” He added that e-commerce growth rates during the key fourth quarter holiday season also didn’t live up to expectations.
BTIG analyst Mark Palmer, who downgraded PayPal stock to a “neutral” rating Wednesday, noted in a report that PayPal’s weak outlook is “a sharp contrast with the more upbeat annual outlooks offered recently by the card networks.”
PayPal, along with key rival Square, have also been hit lately by worries about a slowdown in spending as well as a potential regulatory crackdown on companies offering “buy now, pay later” (BNPL) installment plans.
Shares of Square parent company Block (SQ) plummeted nearly 12% Wednesday in concert with PayPal.
PayPal, Block, BNPL leader Affirm and two other financial tech firms are being scrutinized by the Consumer Financial Protection Bureau and several key Democratic senators for allegedly abusive competitive practices. Affirm’s stock was down 11% Wednesday.
But Schulman seemed undeterred by the possibility of more scrutiny on the BNPL industry from Washington.
“We’re going to increase ‘buy now, pay later’ capabilities, which is on a tremendous roll,” he told analysts Tuesday.