PayPal Holdings Inc. (PYPL) CEO Daniel Schulman told analysts Aug. 2 that the payments processor is “substantially aligned” with activist Elliott Management Corp. on the areas of focus needed to achieve shareholder value.
One analyst following the company, however, suggested that Schulman’s comments could indicate that PayPal could consider M&A of some sort down the road if more immediate changes don’t produce share price improvement first.
PayPal shares have been mostly on a downward trajectory over the past year — and total returns are -52% and -67% in 2022 and over the past 12 months, respectively. Last week, reports emerged about Elliott taking a large PayPal stake, and on Aug. 2 PayPal confirmed it with a statement from the activist fund’s managing partner Jesse Cohn. Cohn said Elliott had accumulated a $2 billion PayPal position, adding that the fund “believes in the value proposition” at the payments company.
On Aug. 2, PayPal announced a new $15 billion share repurchase authorization plan, and it agreed to an information sharing agreement with the activist fund. It also said its fiscal year 2022 financial outlook incorporated about $900 million of cost savings across operating and transaction expenses. In addition, Schulman told analysts that PayPal is undergoing a full evaluation of capital return alternatives and is planning an investor day in early 2023 to share “operational, capital allocation and strategic updates.”
The announcement that PayPal will share strategic updates, including for capital allocation, indicated to Lisa Ellis, an analyst at MoffettNathanson LLC, that the company could subsequently consider M&A if more immediate changes don’t do enough to boost shareholder value.
“It is a bit odd for them to note on their earnings call that they will have an investor day in early 2023,” Ellis said. “Presumably, that is what Elliott is wanting, and [PayPal] is setting a timeline for changes.”
She also pointed to PayPal’s announcement on Aug. 2 of a commitment to move its U.S. merchant and European loan books — valued at roughly $5 billion — off its balance sheet as another indication that M&A could materialize.
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