PayPal forecast falls short of estimates amid strong competition

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PayPal Holdings Inc. issued a forecast that didn’t meet Wall Street’s expectations, signaling struggles ahead as it looks to compete with banks and startups in the online payments market.

For this year’s earnings, the San Jose, California-based company projected net revenue will rise to between $15 billion and $15.25 billion, compared with the average analyst estimate of $15.26 billion. The forecast for the current quarter is about in line with what analysts expect.

Chief Executive Officer Dan Schulman has been making a push for PayPal to become a versatile financial tool, rather than just a payment button on a website, and expand access across the financial services industry. But competition is strong from startups and incumbents alike. Japanese telecommunications giant SoftBank Group Corp. is reportedly planning to create a digital payments system, and large U.S. banks are spending millions to ramp up their own digital offering, Zelle.

Schulman’s move to expand PayPal’s Venmo service, turning it into a method for paying merchants directly, might not be paying off as quickly as anticipated. Transaction growth of the product slowed in the fourth quarter to 86 percent from 93 percent in the previous period, the company said.

Performance last quarter exceeded analyst estimates. Adjusted revenue hit $3.71 billion in the quarter, topping the average analyst’s projection of $3.63 billion. Total payment volume continued to rise as active customer accounts hit 227 million. Earnings excluding some costs were 55 cents a share, compared with the average forecast for 52 cents.

PayPal said it extended an agreement with EBay Inc. to be used as a form of payment on the site through 2023. The initial contract was signed as part of PayPal’s split from EBay in 2015.

Shares of PayPal fell as much as 5.7 percent in after-hours trading. The company had seen strong momentum over the past year with shares doubling before the report, giving analysts lofty expectations. Of 47 analysts covering the company, 34 had buy ratings on the stock. The other ratings were all holds.

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