Financial communication is a tricky business. Did PayPal's new CEO forget this when he promised last month to "shock the world"? Whether foolhardy or naïve, his initial statement is a moot point, as the share price has since plummeted.
As far as results are concerned, there were both good and not-so-good reports, with very little visibility for the near future. The good news is that transaction volumes are up 15%, sales are up 9%, and the "buy now pay later" credit business is off to a promising start.
The downside is the decline in the number of active users - which tends to show that its past growth was the direct result of acquisitions rather than organic momentum - and the fact that the company's sales are down. We also have the ongoing erosion of gross margins, a glaring symptom of the commoditization of the online payments sector.
This poses a major challenge for PayPal and its new CEO Alex Chriss. The latter, who spent twenty years at Intuit, presided over the highly successful development and expansion of QuickBooks and Mailchimp. Despite his clumsiness in the early days, Chriss has shown a real willingness to improve transparency with investors.
He'll have his work cut out for him if the company is to recover from its epic decline in value. Over the past eight years, for example, PayPal has spent $25 billion - more than a third of its current market capitalization - on share buybacks at valuations often three to four times higher than current levels.
In addition, $8.5 billion in stock options were paid out over the same period. A third of the total amount of share buybacks therefore served as a counterweight to these expenses. As with all major US technology companies - Snapchat, for example, albeit in incomparably less dramatic proportions - part of these share buybacks should therefore be considered an operating expense rather than a genuine return of capital to shareholders.
PayPal remains a leader in the online payments sector, whose new management is driven by an undeniable and salutary sense of urgency. Its technology platform, still a patchwork after a series of acquisitions, should become more homogeneous and integrated over the coming months, with the potential for substantial savings.