TLDR
- PayPal stock dropped around 9% in premarket trading after Q1 earnings
- New CEO Enrique Lores is targeting at least $1.5B in gross run-rate savings over 2–3 years
- The savings will come from AI adoption, automation, and removing layers from the org structure
- Q1 adjusted EPS of $1.34 beat estimates of $1.27; revenue of $8.35B also topped forecasts
- Q2 guidance was weak, with adjusted EPS expected to fall roughly 9%
PayPal stock was trading at $45.77 in premarket Tuesday, down about 9.2%, after the company posted Q1 results and laid out a sweeping cost-cutting plan under new leadership.
PayPal Holdings, Inc., PYPL
New CEO Enrique Lores, who joined in March after Alex Chriss was ousted, said PayPal has underinvested in its technology platform and is falling behind peers. His answer: cut layers, push AI harder, and narrow the company’s focus.
“PayPal needs to focus,” Lores said. “We need to recommit to the fundamentals.”
Lores comes from HP, where he became known for streamlining operations and pivoting toward AI and subscriptions. He’s applying a similar playbook here.
The plan calls for at least $1.5 billion in gross run-rate savings over the next two to three years. PayPal says it will redeploy those savings into growth and to absorb business headwinds.
PayPal didn’t say how many jobs would be cut, but the restructuring will involve removing “duplication and layers” from its organization. Accelerated AI and automation across operations is the other key lever.
This year and next, the company will be rearranging teams and building new systems and processes. It’s a rebuild, not just a trim.
Q1 Results Beat, But Guidance Disappointed
First-quarter revenue came in at $8.35 billion, up from $7.79 billion a year ago, and ahead of the $8.05 billion analysts had penciled in.
Adjusted EPS was $1.34, beating the $1.27 consensus estimate. But GAAP net income fell to $1.11 billion, or $1.21 per share, from $1.29 billion, or $1.29 per share, in the same period last year.
Transaction margin dollars — a closely watched profit metric — rose 3% to $3.8 billion. Total payment volume climbed 11% to $464 billion.
The beat on earnings and revenue wasn’t enough to offset what came next.
Q2 Outlook Weighed on the Stock
For Q2, PayPal guided for adjusted EPS to fall by roughly 9%, a high single-digit percentage decline. Transaction margin dollars are expected to slip about 3%.
For the full year, the company held its outlook for adjusted EPS growth in a range of a low single-digit decline to slightly positive.
It’s a modest outlook, and the market’s reaction made clear that investors were hoping for more.
Restructuring Into Three Business Units
Last week, PayPal said it would reorganize into three units: Checkout Solutions & PayPal, Consumer Financial Services & Venmo, and Payment Services & Crypto.
Lores said checkout remains his top priority. He also sees growth potential in buy now, pay later as consumers look for flexible payment options.
The board brought Lores in because it was unhappy with “the pace of change” under his predecessor. PayPal’s checkout business had seen growth slow following the pandemic boom.
PayPal’s restructuring news came on the same day Coinbase announced a roughly 14% headcount reduction, and follows Block’s decision in February to cut its own workforce. All three cited AI as a key reason for the reductions.
Transaction margin dollars rose 3% to $3.8 billion in Q1, and total payment volume hit $464 billion, up 11% year over year.
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