PayPal Holdings Inc recently cut its outlook for annual adjusted operating margin, causing its shares to drop by 5% in after-hours trading. The company reduced its adjusted operating margin expansion forecast from 125 basis points to 100 basis points for the year.
Investors are concerned that PayPal's high-margin business, the branded checkout button, may be losing market share to Apple. In addition, the current high-interest rate environment has caused lower-income customers to cut back on expensive purchases.
Despite the reduction in operating margin outlook, PayPal raised its full-year adjusted profit forecast due to strong e-commerce trends and cost cuts. The company now expects adjusted profit growth of approximately 20% to $4.95 per share, exceeding analysts' estimates.
PayPal is also focused on artificial intelligence (AI) to accelerate its productivity initiatives. The company plans to use generative AI to add features for merchants and consumers on its platform while also lowering costs. CEO Dan Schulman believes AI will significantly reduce expenses for years to come.
PayPal's revenue increased 10% on a forex-neutral basis to $7.04 billion in the first quarter. The company continues to focus on lowering expenses while navigating the impact of inflation on consumer spending.
Overall, while PayPal's operating margin forecast reduction has caused some concern among investors, the company's strong profit growth forecast and push towards AI suggest a promising future for the payments firm.
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