PayPal at crossroads as yet another new CEO hired for turnaround

By Paige Smith, Georgie McKay and Emily Mason, Bloomberg

PayPal Holdings Inc., an early mover in the world of digital payments, now finds itself in a rut it can’t seem to get out of.

Its customers are increasingly using other ways to pay. A former executive criticized the company in a rare public display of frustration. And investors have sent PayPal’s shares down 30% since the start of the year.

Investors, for their part, are souring on all the parts of the business that come with the PayPal name. While revenue from businesses like Venmo continue to skyrocket, problems have continued to plague the so-called branded checkout business, which is home to the eponymous PayPal buttons found on retailers’ websites around the world.

Last week’s ouster of Alex Chriss after less than two and a half years as chief executive officer has prompted analysts to weigh what businesses PayPal might sell off to get its performance back on track and quell shareholder concerns. For now, it’s a chance for PayPal’s new CEO, Enrique Lores, to put his stamp on the company.

“Based on the CEO change, it looks like it’s more of a split-the-business-up kind of strategy,” said Chris Donat, head of payments and fintech research at BWG Global. “The biggest challenge is that they have a lot of products that are facing multiple competitors, and they’re likely to lose market share with those products,” he said, adding that “there’s nothing really new and exciting with PayPal checkout, and there hasn’t been for a while.”

It’s a moment for PayPal to further modernize as it competes with the likes of Stripe Inc., Adyen NV, Apple Pay and Klarna Bank AB, or be stuck with its current identity crisis. PayPal’s payment-processing platform is worth around $5.2 billion in cash, according to an estimate from Fahed Kunwar, global co-head of research at Rothschild & Co. Redburn. Should PayPal sell it, the company would have about $10 billion in capital, including its free cash flow, to acquire a commerce platform, according to a Rothschild note.

A PayPal spokesperson declined to comment on breakup speculation.

‘Immediate Steps’

For now, PayPal has said it’s again time to get back to basics. The brainchild of Peter Thiel, Elon Musk, Max Levchin and other wunderkinds, PayPal has for years lagged behind its tech-savvy and product-forward peers, with growth underperformance for the firm’s branded-checkout and payment-processing businesses.

Jamie Miller, the firm’s chief financial and operating officer who’s now serving as interim CEO, said Chriss’s dismissal comes as PayPal acknowledges that “execution has not been what it needs to be.”

“We have not moved fast enough or with the level of focus required, and we are taking immediate steps to address that reality,” she told analysts last week.

It was a harsh assessment of Chriss’s time atop PayPal. He’d joined from Intuit Inc., where he oversaw delivery of flagship products QuickBooks and Mailchimp to millions of customers as executive vice president and general manager of the company’s small-business unit.

Formidable Competitors

Chriss’s taking of the reins from Dan Schulman in September 2023 was seen at the time as a much-needed shift. How consumers and businesses handle payments had changed enormously since PayPal was conceived more than a quarter of a century ago.

Apple Pay and Cash App became formidable competitors. PayPal also had to deal with its former parent, eBay Inc., moving consumer payments away from its platform, and an activist investor exerting pressure in 2022. Innovation at the firm was slower than at competitors, and consumer demand had dropped off after the pandemic-spurred online-shopping surge.

The ride took PayPal from being a firm with a market capitalization of around $350 billion in 2021 — higher than the current size of Goldman Sachs Group Inc. — to one that’s now less than $40 billion.

But Chriss and his team — including Miller, previously CFO of professional-services firm EY, and new business heads — largely lacked payments experience, which raised concerns among industry observers given the intricate competitive dynamics and complicated nature of the business.

Early in 2024, PayPal executives were clear about the challenges they faced.

“We are just doing too many things,” Miller said at the time. “We have to make decisions to stop doing things, and just focus.”

Chriss, who called 2024 a transition year, made major changes. Within a few months of becoming CEO, he set about to offload a business that helped consumers return unwanted purchases and announced plans to fire 9% of staff. He also undid a strategy that Schulman had implemented of cutting rates at its payments-processing business, and instead raised processing fees, calling the move a shift away from “unprofitable volume.”

Disappointing Promises

But before his plans could take hold, Chriss stumbled publicly. After he hyped an “innovation event” on social media, with claims he’d “shock the world,” analysts found it all underwhelming: the promises of a sleeker checkout experience and enhanced Venmo business profiles just weren’t all that exciting, and the event was panned by analysts, sending shares plummeting.

Throughout that year, Chriss said he would focus on adding market share and boosting volumes for the product the company was known for: the PayPal-branded checkout button used by online retailers. Branded checkout grew 6% in 2024, and Chriss declared that PayPal had “executed on exactly what we said we were going to go do.” He set targets to be reached by 2027 at an investor day in February 2025, but many analysts remained skeptical.

“Our view actually is that Alex Chriss’s strategy was correct – this idea of building the SMB brand, building the consumer brand was the right approach,” Rothschild’s Kunwar said, referring to small and medium-size businesses. “To be honest, I think the problems precede Alex Chriss – there was a lack of focus in capital allocation at PayPal for probably 10 years before Alex Chriss joined.”

A representative for Schulman, Chriss’s predecessor, pointed to revenue, account and payment-volume growth during his time as PayPal’s CEO.

The firm also raised its full-year earnings guidance twice last year – once in July, and again in October – before falling short of the later guidance at the end of the year. The board made it clear in its statement last week that it was ready for the firm’s next chapter.

Lores, who will take over on March 1, has spent his career at HP Inc. He’s best known for breaking up that colossus, which is spurring speculation that PayPal’s board intends to sell off segments of the firm’s business.

Miller said that Lores is committed to “strengthening performance” and has experience “simplifying complex businesses and leading large-scale transformations.”

“We are fully aligned on the path ahead,” she said.

To turn the business around, PayPal needs to spin off or sell its payment-processing business, Kunwar said. “I think that business probably sits better in the hands of another big processor.”

Along with the hiring of Lores, PayPal executives said last week that they could no longer commit to previous forecasts for next year. Even a former executive came forward to express his concerns about PayPal’s future.

“Over time, the company that had every advantage and could’ve become the most consequential and relevant payments company of our time, lost its mojo, its product edge and its ability to compete in a market that’s being rewired and reinvented in front of our eyes,” former President David Marcus wrote in a LinkedIn post, a rare example of a public rebuke from a former senior leader.

Analysts speculated that PayPal may be dismantled ultimately. Should PayPal spin off its payment-processing business, Kunwar said, the company can focus on a potential golden egg that has been growing: Venmo.

“Venmo has a stronger consumer brand in the US than the PayPal button does,” he said. “Ultimately the problem is the branded business.”

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