PayPal (PYPL) plans to cut 20% of its workforce over the next two to three years. The layoffs are part of the company's latest strategic deployment: accelerating the implementation of artificial intelligence and reducing operating costs. By the end of 2025, the total number of PayPal employees will be 23,800. Based on this base calculation, the scale of layoffs will reach 4,760 positions. Bloomberg was the first to report the news of the layoffs.
PayPal CEO Enrique Lores told investors on Tuesday that the company has underinvested in technology platforms in the past and has lagged behind other financial technology peers. He plans to cut off redundant management levels, invest more resources in artificial intelligence research and development, and strive to become an industry technology leader.
He said: "Paypal needs to focus on its main business and return to the fundamentals of the business."
After former CEO Alex Chris was fired, Lores was parachuted in to take charge of PayPal in March this year. He said that cost cutting is to free up funds to increase investment in new technology research and development.
Lores said: "First, we will streamline the organizational structure and remove business duplication and redundant levels; second, accelerate the implementation of artificial intelligence and automated operation layout in all business lines."
Affected by the news, PayPal's stock price fell by more than 8% on Tuesday, to US$45.93.
The company’s management estimates that in the next two to three years, this round of cost reduction measures will achieve at least US$1.5 billion in total annualized cost savings. PayPal did not disclose specifically which business segments it would cut spending.
Management stated that PayPal will comprehensively restructure its team structure this year and next and build a new business operation system and process system.
Due to dissatisfaction with the pace of change led by former CEO Chris, PayPal’s board of directors hired former HP CEO Lores as its leader early this year. After the epidemic, the growth of PayPal's core payment and settlement business has slowed down, and the company has been pursuing business diversification and transformation.
Lores said that the current top priority is to stabilize the main online cashier and payment business; at the same time, he is optimistic about the growth space of the buy now, pay later (BNPL) business, and consumer demand for flexible installment payments continues to rise.
In addition, financial services, Venmo social payment, and payment processing business will also be key areas of development.
Paypal’s first-quarter net profit fell to US$1.11 billion, equivalent to US$1.21 per share; net profit in the same period last year was US$1.29 billion, or US$1.29 per share.
Excluding one-time items, first-quarter adjusted earnings per share were $1.34, above analysts’ expectations of $1.27.
During his tenure at HP, Lores was known for streamlining the structure and promoting the company's transformation into artificial intelligence and subscription businesses.
This round of layoffs and cost reduction is the second major reform measure taken by Lores after taking office. Last week, PayPal announced a business reorganization that will be integrated into three major business segments:
- TAGPH3 8Cashier payment solutions and PayPal’s main business
Consumer financial services and Venmo
Payment Services and Cryptocurrency Business
PayPal said that this structural adjustment will strengthen the assessment of management's rights and responsibilities and make the company's organizational structure better able to accept high-growth market opportunities such as bank payments, payment processing, and consumer finance.
The company’s first-quarter revenue rose to US$8.35 billion from US$7.79 billion in the same period last year, exceeding analysts’ expectations of US$8.05 billion.
Transaction profits, a closely watched profitability indicator, increased by 3% year-on-year to US$3.8 billion; total payment transaction volume increased by 11% year-on-year to US$464 billion.
For the current second quarter, PayPal expects adjusted earnings to decline in the high single digits, down approximately 9%; trading profits are expected to decline approximately 3%.