PayPal (PYPL) – CEO Interview & an Event – January 20, 2024
Alex Chriss gave an interview on CNBC today. The more I listen to him talk, the more I like him. He’s very blunt, very stoic, and seemingly very intelligent. Still, this will take time to fix. PayPal is a mess that cannot be cleaned up nearly as seamlessly as a Meta in late 2021. I’ve said it before and it bears repeating: My expectations are basically zero for Q4 and will build throughout 2024. He will need to deliver the progress that he expects for me to stay a shareholder through this entire year. Here were the highlights from his interview:
Chriss astutely responded to questions about analyst downgrades by saying “there has not been much to celebrate for a few years.” He called innovation slow and the value proposition not at the level PayPal is capable of delivering. He “loves to be an underdog” and confidently proclaimed that PayPal will “shock the world.” We shall see. Words like this only become meaningful to me when they’re backed up with stellar results. Chriss is only a few months into his tenure. Give him time to prove or not prove himself.
Despite competition ramping and PayPal’s product suite lagging, he’s very optimistic that these issues will be short-lived. PayPal has an unmatched 1st party data set needed to drive better customer discovery with more savings. This data will also be paramount in its ability to raise merchant conversion rates to bolster PayPal success. It can easily use open-source models from players like Meta and Hugging Face, infuse its first party data and create a uniquely valuable means of maximizing conversion (so merchant success).
Furthermore, it will be a key tool in its ability to better connect the vast two-sided network and drive down customer acquisition cost. All of this innovation will be officially announced and released with more detail next week during PayPal’s first “Innovation Day” on the 25th. Finally, he spoke about capital allocation. He hinted at headcount being too large, PayPal conducting too much M&A and a lack of focus. He has since streamlined priorities, which has committed to pursuing only profitable growth. PayPal is expected to exit some businesses in the near future. The stock rallied more aggressively and on heavier volume than it has in a long time following this interview. That speaks to the sheer bloat in PayPal’s headcount and all of the low hanging fruit remaining to cut costs. Eventually, transaction margin will need to bottom to deliver durable profit growth. While it gets to that point however, cutting non-transaction OpEx like headcount and cash burning businesses will allow it to grow EBIT and net income in the nearer term. That’s also needed. A 7% layoff in early 2023 was unfortunately not nearly enough.
Source: YCharts
