PayPal Holdings Inc. (NASDAQ: PYPL) inches down in early session on Tuesday as the company will need to cut more costs because payment volumes are expected to shrink as customers prepare for a potential economic downturn.
The digital payments company based in San Jose, California, announced on Tuesday that it would lay off 7% of its workforce, or approximately 2,000 employees, in line with analyst expectations and the firm’s previous commitment to cut costs.
PayPal was under pressure for the majority of last year as rising inflation and recession fears limited digital payments and e-commerce spending.
“Improving margins has become a higher priority for management in the last year, possibly as a result of activist Elliott Investment Management’s pressure, and this appears to be another step in that direction,” Morningstar analyst Brett Horn said.
Some analysts believe the recent job cuts were prompted by Elliot, which purchased a stake in the company in August. PayPal has the potential to “significantly improve margins over time,” according to Horn, indicating that the company still has room to cut costs.
When the company reported its third-quarter results in November, it reduced its annual revenue growth forecast. As demand continues to soften, Jefferies analysts wrote in a note that there is little reason for investors to be optimistic about PayPal’s growth in the medium term.
CEO of PayPal (NASDAQ:PYPL) Calls For ‘Compassion’
PayPal’s (NASDAQ:PYPL) CEO has called for “compassion for one another” as the tech company joins its peers in laying off thousands of employees. The digital payments company announced a 7 percent reduction in headcount, which translates to 2,000 job losses. Paypal CEO Dan Schulman stated, “Change can be difficult – especially when valued colleagues and friends are leaving.”
PayPal joins a slew of other technology firms in laying off employees this year. Amazon has cut 18,000 jobs, while Google has said it will cut 12,000 jobs. Microsoft has announced the layoff of 10,000 employees. Tech firms have been laying off workers after aggressively hiring during the pandemic, betting on a long-term digital boom. However, as the economy has slowed, they have been forced to scale back their plans.
Mr Schulman, who received $32 million (£26 million) in salary and share-based payments last year, is a supporter of “stakeholder capitalism,” which advocates for businesses to serve the interests of employees, suppliers, the environment, and the general public, rather than just their shareholders. The theory has been attacked by critics in the US by Republican politicians as a kind of “woke capitalism”.
Mr. Schulman has said the company’s values “centre around the fight against any kind of discrimination”. However, the company has come under fire from some UK politicians after briefly suspending payments to free speech campaigner Toby Young last year. It later lifted the ban. The layoffs come after PayPal announced a $15 billion share buyback program last summer in response to activist shareholder Elliott Management.