PayPal Shares Plunge 25% -- Here's Why It's Down So Sharply - Motley Fool

What happened

The stock market was having a modestly strong start on Wednesday, with all three major market indexes in positive territory shortly after the opening bell. However, fintech giant PayPal Holdings (NASDAQ:PYPL) was a big underperformer. As of 10 a.m. ET, PayPal shares were down by 25% to a new 52-week low.

So what

As you might expect, PayPal's steep decline is earnings-related. PayPal released its fourth-quarter and full-year 2021 results after the market closed on Tuesday, and to put it mildly, investors weren't too impressed.

Image source: Getty Images.

The headline numbers were pretty solid. Earnings per share came in a penny shy of analyst estimates, while revenue was a little higher than experts were looking for. The main problem is PayPal's forward outlook. As many experienced investors know, nothing can cause a post-earnings drop as reliably as weak guidance.

PayPal is expecting revenue growth in the 15% to 17% range for 2022, while analysts had been looking for about 18%. The company expects to add 15 million to 20 million new accounts in 2022, which was also lower than many had expected.

In addition to the weak outlook, PayPal's user growth wasn't quite what investors had hoped to see. The company reported that it discovered 4.5 million "illegitimate" accounts, and after excluding these, it missed its own expectations.

Now what

There are certainly some short-term headwinds affecting PayPal. In addition to the illegitimate account issue, inflation headwinds are likely to weigh on the company's results in 2022.

From a longer-term perspective, PayPal is still a financial technology powerhouse that has done a great job of driving user engagement and boosting monetization. If it can get back on track, the post-earnings plunge could be a solid buying opportunity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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