PayPal’s latest layoffs could prove fodder for the stock’s bulls and bears alike

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PayPal Holdings Inc. is planning a new round of layoffs as it continues efforts to cut costs, in a move that one analyst says will offer fodder for both the bull and bear camps on the polarizing stock.

The company intends to reduce its workforce by 9% through a mix of layoffs and the elimination of some open roles over the course of this year, PayPal
PYPL,
-0.13%

Chief Executive Alex Chriss said Tuesday in a letter to staff that was reviewed by MarketWatch.

“We are doing this to right-size our business, allowing us to move with the speed needed to deliver for our customers and drive profitable growth,” Chriss said in the note. “At the same time, we will continue to invest in areas of the business we believe will create and accelerate growth.”

PayPal had 29,900 employees as of the end of 2022, according to its most recent 10-K annual report, released almost a year ago. The company cut its workforce by 7% last winter under the leadership of former CEO Dan Schulman.

Shares of PayPal have been under pressure in recent years, declining 61% over a two-year span and falling 79% from their July 2021 all-time high of $308.53.

“We believe both bulls and bears will interpret today’s news as a validation of their respective theses,” Wells Fargo analyst Andrew Bauch wrote in a Tuesday afternoon note to clients. Perhaps reflective of this, PayPal’s stock ended the day’s trading session near flat.

The bull camp “will view the announcement as a sign [Chriss] is poised to deliver on his margin accretive growth promises, and point to other companies in tech who also made aggressive cost actions and saw productivity improve,” Bauch wrote. In the case of Shopify Inc.
SHOP,
-1.45%
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he added that the productivity gains proved dramatic.

However, bears may see the move as “defensive” and wonder if it “foreshadows potential headwinds” in the company’s fourth-quarter results soon to come, or in the first quarter.

Bauch himself rates the stock at equal weight.

See also: PayPal CEO sees ‘huge monetization opportunity’ after revamp, but stock drops

Chriss, who took over as CEO in September, has discussed the need for PayPal to become leaner and more focused on its strengths.

“What I would say overall is we have lots of opportunities, but we’re doing too many things,” he said in November, on PayPal’s last earnings call. “We’re spread too thin. And we have an opportunity to focus the organization on what matters the most, on the most impactful opportunities to customers and to growing the business, and we’ll be looking at that over time.”

In Tuesday’s letter to staff, Chriss said that he was looking to “instill a culture of innovation that returns our company to the true position of strength it deserves.”

Baird analyst Colin Sebastian said the layoffs highlighted the company’s new emphasis on productivity.

“We note this layoff should bring PayPal back to roughly 2019/2020 headcount levels, or even a bit below, although revenues and operating income are more than 30% higher than three years ago,” he wrote.

The company plans to notify affected employees of their status by the end of the week.



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