PayPal struggled to accelerate growth of its flagship branded service late last year, and is counting on merchant technology upgrades and its new buy now, pay later offering, among other improvements, to drive more expansion of that business this year.
The company reported last week that its profits contracted for the fourth-quarter versus the year-earlier period as its PayPal branded payments volume rose only slightly over the year-earlier period. That increase included an increase in the U.S., but a slight pullback outside the U.S., with “some softness in Europe,” Chief Financial Officer Jamie Miller said during an earnings webcast with analysts explaining the report.
The San Jose, California-based company’s CEO, Alex Chriss, called last year a transition year when the company was “fixing the basics,” but on the Feb. 4 webcast reminded analysts that the number one priority last year was improving the branded service. Chriss took the top post at PayPal in 2023, and has been driving a revised strategy.
“We’re just starting to put together a holistic strategy,” he said, adding that he’s “feeling good” about the prospects for the branded service this year.
Payments volume for the PayPal branded payments service is expected to increase at a slightly faster clip this year, but to remain “uneven” as the company continues to improve the service and its delivery by way of merchants, Miller said.
Specifically, the company has been pushing more merchants to upgrade their systems to more modern checkout technology, and so far has about a fourth of its clientele on those systems, up from 5% late last year. When it comes to consumers, the company is trying to attract more PayPal users by offering new ways to pay, including by way of its buy now, pay later offering.
Analysts pointed to the lackluster PayPal branded results as a reason investors pushed the stock down last week. “Disappointing branded growth” was “partially stunted by (international) weakness,” Mizuho Securities analysts said in a Feb. 5 note to clients, explaining branded growth accelerated 50 basis points for the quarter, compared to the year-earlier period, because the international drag offset 300 basis points of U.S. growth.
Chriss believes the company is making headway in addressing the “gaps” that have existed between the experiences consumers have using PayPal’s branded services on their phones and other mobile devices, versus the desktop offering. The new PayPal team has been trying to improve the mobile experience for the increasing number of consumers who regularly turn to such mobile devices.
On another front, PayPal has also been pitching its debit card to consumers in a bigger way.
“These initiatives, along with consumer habituation drivers such as debit cards, can support Branded volume growth in 2025,” analysts at the financial firm Berstein said in a Feb. 4 note to clients last week.
Still, the other challenge to the branded PayPal play is the increase in competition that has been building over the past few years from the likes of Apple Pay, Google Pay and new buy now, pay later payments providers, such as Klarna and Affirm.
“We do hesitate to bake in acceleration on branded volumes given the adverse competitive dynamics e.g., from Apple Pay online, other checkout options,” the Bernstein analysts said.
The Mizuho analysts echoed those concerns in their note: “There are worries about (PayPal’s) moat given US Branded Checkout growth in the (low single digit percentage) range in prior quarters.”
Perhaps as a hedge against the growing competition, PayPal also plans to put more money into advertising this year, Miller said.
On the sale of its Braintree unbranded services, the company has intentionally reduced growth in volume as it seeks to increase the pricing with the large retail clients who buy that service.
The company will continue to face headwinds on this unbranded front as it renegotiates contracts this year, but Chriss is pleased that for the first time PayPal is offering these clients benefits from the connections PayPal has to consumers. “We’re bringing customers to these conversations,” Chriss said.
PayPal’s fourth-quarter net income dropped 20% to $1.12 billion as revenue rose 4% to $8.4 billion, according to the company’s earnings report. For the full year, net income slipped 2% to $4.15 billion as revenue climbed 7% to $31.8 billion.
Payments volume rose 7% for the fourth quarter and 10% for the year, according to the report last week.
