For PayPal’s new CEO, Alex Chriss, one of the key challenges will be jump-starting profitable growth, say analysts who follow the company.
PayPal’s lower-margin Braintree business has been expanding at a faster rate this year than its legacy checkout business. While growth is good, that lopsided expansion has been putting a damper on PayPal’s overall profit margins. And before that, the San Jose, California-based company was falling short of goals to boost net new accounts, so it’s in the process of pivoting to push increased engagement from the accounts it has.
Those circumstances will put a focus on the ability of Chriss, a long-time executive at software company Intuit, to beef up overall growth, particularly consumer and merchant use of the company’s checkout tools. Chriss was appointed CEO this week, effective next month, in keeping with PayPal’s plan to have long-time CEO Dan Schulman step down.
PayPal has struggled to expand as the payments field has become more crowded with competitors. Rivals have created new digital tools — including buy now, pay later options — to take on the digital payments pioneer in its checkout niche. In addition, PayPal’s digital wallet efforts, including its peer-to-peer Venmo tool, have faced competition from tech behemoths Apple, Google and Amazon innovating with new products in that space.
“Mr. Chriss will be inheriting a challenged but not un-fixable story, in our opinion,” analysts at Mizuho Securities said in a note to the firm’s clients on Monday. “First and foremost, PayPal will need to change the Apple Pay share loss narrative.”
The Mizuho analysts also suggested Chriss should consider PayPal blending the PayPal and Venmo brands. PayPal acquired Venmo when it bought Braintree in 2013, but has largely operated it as a separate unit.
While some analysts praised the appointment of an executive outside of PayPal, it may have been striking for others that the company tapped an executive with so little payments experience. Without explaining their reasoning, the Mizuho Securities analysts said: “This is somewhat of a surprise appointment, in our view.”
At Intuit, Chriss played a leadership role in that company’s work with small and mid-sized business clients. That experience could come in handy at PayPal as the company seeks to stoke demand from SMB clients for its services, particularly its new PayPal Complete Payments offered through Braintree and directed at that client set.
“We highlight (Chriss’s) deep experience with SMBs, a specific focus area for PayPal as it looks to penetrate the market with its PPCP platform,” RBC Capital Markets analyst Dan Perlin said in a note to his clients Monday. Successfully scaling that business possibly could reduce pressure on the company’s margins in the unbranded business, he said.
Perlin also noted the potential benefit to PayPal of Chriss’s experience leading a large international business, given PayPal’s global expansion ambitions. As the executive vice president and general manager of Intuit's small business and self-employed group, Chriss led parts of the business that included thousands of Intuit workers and millions of Quickbooks and Mailchimp customers, according to a press release from PayPal about his appointment.
During his five-years leading Intuit’s small business segment, Chriss increased customer count and revenue at a compound annual growth rate of 20% and 23%, respectively, according to the release.
“We believe the experience (of Chriss) sounds highly relevant to PayPal as it reemphasizes focus on small merchants and launches PayPal Complete Payments,” analysts at William Blair said in a note Monday to the firm’s clients. The analysts also said “long-term opportunities remain substantial,” noting a $110 trillion global market opportunity.
