MW Is PayPal bound for a breakup? Why the company's problems seem so hard to fix.
By Emily Bary
Shoppers have 'more choice than ever before' when it come to payments, and PayPal has been slow to adapt to a more competitive landscape
Enrique Lores is taking over as PayPal's CEO. He helped engineer the breakup of HP and HP Enterprise a decade ago.
PayPal's stock just staged one of its worst daily drops on record, and that sends a message about the tough road ahead for incoming CEO Enrique Lores.
The company has struggled to adapt to changes in the payment-technology landscape, especially as rivals like Apple $(AAPL)$ have gained ground. Analysts don't exactly seem convinced that new leadership can get PayPal (PYPL) on a meaningfully better path.
Some analysts are wondering whether the appointment of Lores, a PayPal board member who was a prominent player behind the 2015 breakup of HP $(HPQ)$ and Hewlett Packard Enterprise $(HPE)$, signals that fellow board members think a PayPal split might be the best way to deliver value for shareholders.
See also: PayPal's stock suffers near-historic decline upon 'dramatic' CEO change
On one hand, PayPal's assets, which also include Venmo, Braintree and remittance products, "are deeply synergistic," wrote Bernstein analyst Harshita Rawat. But "there is potential for value creation" by spinning some off, she added, especially if the brands were to maintain commercial relationships with one another.
That might also explain why PayPal, as William Blair analyst Andrew Jeffrey put it, just tapped a CEO with "no payments experience." That "seems an odd move for the board of a competitively challenged company," he said.
Jeffrey said a potential separation of PayPal's Venmo and buy-now-pay-later businesses could make sense. "This might allow a new entity to pursue digital finance while the remainder would be a pure-play e-commerce payment service provider," Jeffrey wrote.
But when asked on the earnings call about whether asset sales were on the table, PayPal CFO and interim CEO Jamie Miller said the company was more focused on its "integrated strategy."
"The best way to create value is to improve yourselves organically, and we're going to be very focused on doing that," she said.
How we got here
PayPal was a darling of the pandemic era, when it even briefly fetched a higher market value than Mastercard $(MA)$. Online shopping was all the rage, and PayPal's checkout products made that process easier. But now some of the features that once made PayPal so useful - like quick access to payment credentials online - are somewhat commonplace as browsers make it easy for users to store credit-card numbers and as Apple Pay grows.
Tom Noyes, managing partner of the Starpoint LLP advisory business and a Citibank veteran, argued that PayPal got too complicated under the tenure of then-CEO Dan Schulman, who pursued disparate acquisitions in a push to make PayPal a "super app" for consumers. The company would've been better served focusing on improved solutions for retailers, in his view.
PayPal now has "institutional irrelevance among top merchants," he wrote in a Tuesday blog post.
David Marcus, a cryptocurrency executive who served as PayPal's president more than a decade ago, had a somewhat different diagnosis, arguing that the company focused too much on optimizing its financial performance and not enough on making its product offerings stand out.
The company's lending business, for instance, was "optimized for loss minimization," he wrote on X. "Lending never became programmable, never became identity-driven, and never became a reason for merchants or consumers to choose PayPal over something else."
And with buy-now-pay-later, PayPal seemed to treat installment payments "as a defensive checkout feature rather than an offensive category," he added.
"There was no attempt to turn it into a core consumer relationship, no super-app behavior and no meaningful differentiation for merchants," he wrote. "Others built platforms, PayPal added a feature."
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In 2023, the company brought in Alex Chriss, an Intuit $(INTU)$ veteran, to spark a turnaround. He focused on things like rewards, loyalty, Venmo monetization and a general push to grow more profitably.
"As a product guy, he saw the mess and prioritized a massive restructuring aimed at modernizing the technology stack and reducing costs," Noyes wrote. "This wasn't a bad idea, but the team totally missed the shift in the market and driving PayPal to where it needed to be, not fixing the execution on where it was."
In announcing that Lores will be taking over at the start of next month, PayPal said that "some progress has been made in a number of areas over the last two years," but "the pace of change and execution was not in line with the board's expectations."
The sudden CEO shake-up comes on the heels of a sharp growth slowdown in PayPal's branded-checkout volumes, a proxy for the monetary value of user transactions made via PayPal's core checkout button and some other options, like Pay With Venmo. Growth there was only 1% in the fourth quarter, below the 5% rate seen in the prior two quarters.
Investors are left to wonder "whether branded checkout could be stabilized or if the ship has sailed amid valuable time lost in execution issues and intensified competition," Rawat wrote in a note to clients on Tuesday.
Branded checkout is more profitable than PayPal's unbranded-checkout business. So another question is whether "the company can even grow earnings if branded deteriorates from here," she added.
PayPal has 439 million active accounts and racked up $475 billion in payment volume last quarter. But the company's scale could be part of the problem, according to BTIG analyst Andrew Harte, who said PayPal has been slow to adapt to changing merchant or consumer preferences, even as it "clearly" loses share in the market for online payments.
Meanwhile, consumers have "more choice than ever before" when it comes to payment technology, he said.
PayPal's stock has been battered, falling 86% from its peak close in July 2021. Once valued on par with Mastercard, PayPal now has a market capitalization that's less than a tenth of Mastercard's.
But Miller, the company's CFO and interim CEO, thinks PayPal still has several things working in its favor.
"While we're not satisfied with our online branded checkout performance today, we are confident in the plan to stabilize and strengthen it. Importantly, we are executing with multiple competitive advantages," she said on the earnings call. "Our scale, our trusted brand, deep consumer and merchant relationships and diversified growth drivers give us resilience and flexibility moving forward."
-Emily Bary
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(END) Dow Jones Newswires
February 04, 2026 07:54 ET (12:54 GMT)
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