PayPal Q2 Earnings Disappoint – Hope lies in AI

Paypal’s Q2 2023 earnings call has failed to convince the market as the stock slipped following the announcement of disappointing operating margins. 

The company’s adjusted operating margin for the quarter was 21.4% just missing a predicted 22%

Operating cash flow had dropped significantly compared to a year prior and was hovering at -$0.2 billion. Free cash flow had also dropped to -$0.4 billion. Both shifts were attributed to a $1.2 billion negative impact from European BNPL which the company expected to sell in the second half of this year. 

Net revenues were higher than 2022, reaching $7,287 million just exceeding expectations. Total payment volume was at $376.5 billion and growth remained low. 

paypal growth

“Headwinds turning to Tailwinds”

Dan Schulman, PayPal’s CEO was upbeat, focusing on predicted improvements in the surrounding economic environment. 

Schulman highlighted the growth of branded checkout volumes over June and July, up 8%, stating that they had reached their “highest monthly growth rate since the end of the pandemic.” He reiterated that the company was “seeing an inflection point.” and expected the results of H2 to continuously improve. 

“Many of the headwinds we faced are now turning into tailwinds,” he said. “Encouragingly e-commerce growth appears to have stabilized in the mid-single digits substantially above our estimates when we entered 2023”

He also explained that, although the macroeconomic environment was fluid, as core inflation rates begin to fall, the company was well positioned to take advantage of an expected rise in discretionary spending.  

“As a market leader in digital payments, any uptick in E-commerce will accelerate our growth,” he said.

While e-commerce market growth has seen an increase since its plummet in 2022, it is predicted to remain at a stable 8-9% over the next four years. With increased competition within the online checkout space, Paypal faces a battle. 

To accelerate future growth, Schulman stated the company will be focused on three primary areas: 

  • Their branded checkout solutions 
  • PSP Merchant Solutions 
  • Digital Wallets

“All three of these are critical and interrelated. They are essential for us to increase our share of the e-commerce market, as well as accelerate our margin dollar growth.”

Focus On AI 

An additional area of focus for the call was the company’s integration of AI which Schulman stated would greatly improve the company’s customer experience. 

Dan Schulman, CEO, PayPal

“Our initial experiences with AI and continuing advances in our processes, infrastructure and product quality enable us to see a future where we do things better, faster and cheaper,” he said. “These overall cost savings come even as we significantly invest against our three strategic priorities.” 

He explained that the company had already started experimenting with an AI assistant that they expected to be integrated into PayPal’s consumer-facing app later this year. 

In addition, he highlighted interest in the company’s “next generation checkout solution,” which he said would “leverage the scale of our network vault, our deep understanding of our two-sided network and the development of proprietary AI models.”

The company’s extensive network and reputation within the checkout space underlay Schulman’s optimism for future development. 

“We are now able to take advantage of many of the investments we have made over the past years…leveraging our modern infrastructure and our scale in the age of AI,” he said.

“We believe that only those companies with unique and scale datasets will be able to fully utilize the power of AI to drive actionable insights and differentiated value propositions for their customers.”

RELATED: Citing current ‘strong-footing’ for PayPal, CEO plans succession

  • Isabelle Castro Margaroli

    Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

    Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.