PayPal (PYPL) and Amazon (AMZN) – Revving Up – December 8, 2023
When new PayPal CEO Alex Chriss took over, one of his commitments was to never chase unprofitable growth. Old PayPal leadership, through 2021, did things like offer cash burning promotions to developing markets with zero chance of ever receiving positive paybacks. It did this to prop up its total account number to impress Wall Street when, in reality, the move meant little revenue and less profit. Chriss is determined not to make these mistakes.
Through profit sharing agreements and some promotional activity, it’s likely that Venmo Checkout on Amazon was not a profitable business for PayPal. We’ll wait to see what leadership has to say, but if I had to guess, I strongly believe this is Chriss saying no to repeating PayPal’s 2021 mistakes. Regardless, the volume from this partnership was tiny and shouldn’t have any material impact on overall results.
But what if I’m wrong? What if this is a sign of no product-market fit? What if Amazon truly just didn’t want the tens of millions of users on Venmo to have that option? That wouldn’t be the end of the world either, despite being a larger negative.
Venmo needs to copy Cash App’s product suite. It should be the consumer destination for financial services and leave branded checkout to PayPal. Ideally, it could’ve done all of these things, but Venmo’s use cases just aren’t in branded online checkout. It’s social and service-oriented in nature. It’s more intuitive to split an Uber with Venmo and checkout on Nike with PayPal. While this removes a margin lever opportunity, it likely allows the firm to focus on higher probability margin levers going forward. It needs to keep leaning into local business profiles, incorporate sponsored listings for these local merchants and find more success with its credit and debit offering. These items become more vital in a world where branded checkout is no longer a focus area.
Alex Chriss is accelerating the pace of product upgrades for PayPal. Considering how slow-moving this firm was under old leadership, this is vital. For context, previous leadership took several quarters just to implement its latest checkout flow for not even half of its largest merchants. That is in no way, shape or form acceptable in 2023. Under operation “Quantum Leap” Chriss has demanded more rapid product improvements to compete with Stripe and Apple. Chriss thinks they’ve fallen behind the competition, which is a common opinion, and this is his push to rapidly address that. They’re looking to fast track these needed upgrades and have them rolled-out by March. While I don’t think PayPal is a dinosaur, I do think it needs to innovate more and move faster. Chriss seemingly agrees.