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PayPal Surges as Analysts Cheer ‘Tough Love’ From Elliott- Newshubweek

PayPal Surges as Analysts Cheer ‘Tough Love’ From Elliott
Written by Arindam

(Bloomberg) — PayPal Holdings Inc. jumped after saying activist investor Elliott Investment Management is now one of its largest shareholders and recent cost-cutting moves will result in savings of $900 million this year.

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Such savings will swell to $1.3 billion next year, the payments giant said Tuesday in a statement announcing second-quarter earnings. PayPal also announced that its board authorized a new $15 billion share-repurchase program.

“We continue to gain share as we execute across our key strategic initiatives, even as we drive operational efficiency across our business,” Chief Executive Officer Dan Schulman said in the statement.

Schulman has been vocal about his plans to improve PayPal’s operating leverage — or the ability to grow revenue faster than expenses. Still, expenses soared 18% to $6.04 billion in the period. While that was in line with the average of analyst estimates compiled by Bloomberg, revenue climbed just 9%.

Elliott said it took a $2 billion stake, making it one of the company’s largest investors. The firms have entered into an information-sharing agreement and Jesse Cohn, a managing partner for Elliott, said in the statement that he looks forward to working with Schulman and PayPal’s board.

“Elliott strongly believes in the value proposition at PayPal,” Cohn said. “PayPal has an unmatched and industry-leading footprint across its payments businesses and a right to win over the near- and long-term.”

The stock rose as much as 14% following the announcements, after ending regular New York trading at $89.63. It has slumped 52% this year, steeper than the 18% decline of the S&P 500 Information Technology Index.

“Tough love from Elliott Management helped steer PayPal in the right direction,” Dan Dolev, an analyst at Mizuho, said in a note to clients. “PayPal’s cost basis was way too high, and it needed to return capital to shareholders.”

PayPal has been in the midst of a series of management changes, and it announced Tuesday that Blake Jorgensen will take over as chief financial officer after John Rainey left to join Walmart Inc. earlier this year. The company said it is also conducting an external search for a new chief product officer following the departure of Mark Britto later this year.

Jorgensen joins PayPal from Electronics Arts Inc., where he was both chief operating officer and CFO. He is also a former CFO of Levi Strauss & Co. and Yahoo! Inc.

Payments Volume

PayPal has faced pressured in recent quarters from supply-chain disruptions and once-in-a-generation levels of inflation that hindered e-commerce spending. And EBay Inc., PayPal’s former parent company, has been rapidly moving payments away from its platform. Payments volume climbed 9% to $339.8 billion, missing the $344.3 billion average of analyst estimates compiled by Bloomberg and the smallest increase in at least two years.

PayPal said earlier this year it was pivoting away from a previous strategy of trying to add millions of new users. Instead, it is seeking to encourage existing customers to use its app more frequently.

The firm showed progress on that front: Transactions per active account climbed 12% to 48.7 in the quarter. It continues to expect to add roughly 10 million new users this year.

The company now expects total payments volume for the year to climb by 16%, compared with an earlier range of 15% to 17%, according to the statement. PayPal boosted its forecast for adjusted earnings per share for the year to a range of $3.87 to $3.97, compared with earlier guidance of $3.81 to $3.93.

“We are advancing our priorities and sustainably improving our cost structure,” interim CFO Gabrielle Rabinovitch said in the statement. “We are focused on creating value for our shareholders and strengthening our position as a leading global digital payments platform.”

(Updates with analyst quote in eighth paragraph.)

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