PayPal shares drop 5% as consumers cut back spending

Cost-of-living crisis driven by decades-high inflation has hit people's purchasing power

PayPal lowered its annual forecast as a fall-off in spending has in turn depleted the digital payments giant's revenues. Stock picture

Shares in PayPal dropped nearly 5% after the digital payments heavyweight lowered its annual revenue forecast, warning of a bleak quarter as consumers cut back on discretionary spends.

Decades-high inflation has hit the purchasing power of consumers who also have to contend with the threat of a looming recession.

"Consumers have been trading down from high-end, expensive to more affordable brands while also spending more on non-discretionary products," Wedbush analyst Moshe Katri said. 

PayPal said lower- and middle-income households had started reducing non-essential spending, as they grapple with higher prices of food and energy.

The company's cautious comments point to its higher exposure and sensitivity to discretionary spending, Mr Katri said.

"Given a challenging macro environment, slowing e-commerce trends and an unpredictable holiday shopping season, we are being appropriately prudent in our Q4 revenue guide," chief executive Daniel Schulman said in a call with analysts.

The California-based company on Thursday night cut its 2022 adjusted revenue growth outlook to 10% from 11% forecast earlier, while also forecasting bleak e-commerce growth in the fourth quarter.

"E-commerce remains in precarious territory with trends deteriorating through the quarter and an uncertain backdrop, increasing the possibility that not much improvement may materialize next year," KBW analysts wrote in a note. 

At least 11 other brokerages including JP Morgan, Wedbush and Jefferies lowered their price targets after results. 

• Reuters