PayPal’s struggles make case for bold CEO choice
Changes fourth paragraph to reflect the timing of when Schulman brokered deals with Mastercard and Visa. The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Anita Ramaswamy
NEW YORK, May 11 (Reuters Breakingviews) -Dan Schulman’s reign as PayPal’s PYPL.O CEO is headed for a rocky finish. Disappointing results this week lopped another 16% off the company’s market value. It is becoming increasingly evident the digital wallet provider would benefit from a shakeup led by a bold outsider.
Since eBay EBAY.O spun off PayPal in July 2015, less than a year after Schulman moved into the corner office, it has delivered an annualized return of about 8%, lagging the roughly 11% from the S&P 500 Index .SPX and 13% at the Nasdaq Composite Index .IXIC, according to Refinitiv data. Benefits from a pandemic-induced e-commerce boom have evaporated. Revenue growth of 18% in 2021 shrank to 8% in 2022. Operating profit, which had increased every year since the company went public, fell 10% last year. Pushy investor Elliott Management turned up in August.
There are no obvious internal candidates to succeed Schulman, suggesting he neglected an important part of the job. Instead, he will retire in December, sticking around until the board finds a replacement.
Lucrative deals Schulman brokered with Mastercard MA.N and Visa V.N last decade are of relatively less value now. Today’s problem is that $71 billion PayPal seems to be losing market share in branded checkout, a higher-margin business where its logo appears on websites so shoppers can check out quickly. It has been growing faster in the unbranded segment, which merchants prefer because fees are lower, but which also allows customers to choose rival services more easily.
Schulman points to artificial intelligence as a way to cut more costs. Beyond that, however, any new CEO will be taking charge of a payments pioneer, one that created a diaspora of corporate leaders known as the “PayPal Mafia,” including Tesla TSLA.O boss Elon Musk and venture capitalist Peter Thiel, just trying to keep pace with Apple AAPL.O, Stripe and others.
Opportunities abound, but may be tough to implement. PayPal could, for example, offer foreign exchange, risk management or similar services to its 35 million vendors. Or the company’s trove of data might feed powerful AI models to generate new sources of revenue. Partnerships with companies seeking to develop super-apps, such as Musk-owned Twitter, are another option.
Hiring Affirm AFRM.O CEO Max Levchin, another PayPal Mafia member, or Pinterest PINS.N boss Bill Ready, also an alum, might inspire fresh thinking. Whether either could be tempted away from their existing roles is another question entirely. What’s clear is that it’s time for PayPal’s board to be creative and courageous.
Follow @AnitaRamaswamy on Twitter
CONTEXT NEWS
PayPal on May 8 narrowly increased its earlier full-year earnings forecast, to $4.95 a share, and tempered its outlook for annual adjusted operating margin, to a 1 percentage point gain from a previously indicated 1.25 percentage points. The news sparked a 16% decline in the company’s stock price, to $63.38, by the close of May 10.
Chief Executive Dan Schulman added that the search for his replacement is “well underway.” PayPal said on Feb. 9 that he would retire on Dec. 31.
Editing by Jeffrey Goldfarb, Oliver Taslic and Sharon Lam
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