PayPal Holdings (PYPL.O) shares dropped nearly 6% in morning trade on Friday after the digital payments heavyweight lowered its annual revenue forecast, warning of a bleak holiday quarter as consumers cut back on discretionary spends.
Decades-high inflation has hit the purchasing power of consumers who also have to contend with the threat of a looming recession.
“Consumers have been trading down from high-end, expensive to more affordable brands while also spending more on non-discretionary products,” Wedbush analyst Moshe Katri told Reuters.
PayPal said lower- and middle-income households had started reducing non-essential spending, as they grapple with higher prices of food, energy and gas.
The company’s cautious comments point to its higher exposure and sensitivity to discretionary spending, Katri said.
“Given a challenging macro environment, slowing e-commerce trends and an unpredictable holiday shopping season, we are being appropriately prudent in our Q4 revenue guide,” Chief Executive Daniel Schulman said in a call with analysts.
The San Jose, California-based company on Thursday cut its 2022 adjusted revenue growth outlook to 10% from 11% forecast earlier, while also forecasting bleak e-commerce growth in the fourth quarter.
That was in line with commentary from the National Retail Federation (NRF), which earlier this week forecast holiday sales, including e-commerce, to grow at a slower pace this year even as retailers offer steep discounts to attract shoppers and clear out excess inventory.
“E-commerce remains in precarious territory with trends deteriorating through the quarter and an uncertain backdrop, increasing the possibility that not much improvement may materialize next year,” KBW analysts wrote in a note and slashed the price target on the stock to $95 from $115.
At least 11 other brokerages including J.P. Morgan, Wedbush and Jefferies lowered their price targets after results.