PayPal is joining the growing chorus of tech companies that have decided to reduce their headcount this year as the company announced today that it will be laying off 2,000 employees.
The Chief Executive Officer of the digital payments company, Dan Schulman, explained in a letter sent to employees that the firm has been making changes to address a “challenging macroeconomic environment”.
Schulman also said that the employees to be let go will be notified over the coming weeks. He also emphasized that some business units will be more impacted than others and commented that the company will be providing “generous packages” to help those affected during their transition to a new employment situation.
PayPal may have been preparing for this decision many months ago as indicated by the comments made by the leadership team during the earnings call that discussed PayPal’s earnings for the third quarter of 2022.
Back then, Schulman commented: “there are certain things we can control, as our expenses, where we’re investing, how we’re doing in those investments. And there, I think the team is doing an excellent job. And there are certain things like the macro environment that we can’t control but we need to be ready in a wide range of scenarios”.
Why are PayPal and Other Tech Firms Reducing Their Headcount?
The macroeconomic environment has been deteriorating lately amid the hawkish measures taken by the largest central banks in the world to reduce inflationary pressures. As a result, most economists expect a global economic slowdown within the next 12 to 24 months while the odds of a recession in the United States have spiked to 96% according to a report from The Conference Board.
PayPal is highly sensitive to changes in consumer spending and that could be the reason why its leadership team is also reducing its headcount as higher interest rates typically lead to lower consumption due to an increase in borrowing costs.
Other prominent tech companies that have announced layoffs since the year started include Alphabet (GOOG), Microsoft (MSFT), Spotify (SPOT), and Salesforce (CRM). In addition, Stripe – one of PayPal’s toughest rivals – recently announced a 14% reduction in its headcount.
Meanwhile, in August last year, activist investor Elliot Management revealed a $2 billion stake in the digital payments firm. The investment company is expected to put pressure on the leadership team to deliver better results and it may have influenced this latest decision to reduce the size of its workforce.
Jason Benowitz, senior portfolio manager at Roosevelt Investments, commented to Reuters back then: “PayPal let an activist investor inside the tent with an information sharing agreement. We expect the company to materially refresh its top management layer and make tough choices to improve profit margins”.
PayPal Stock List Third-Quarters of its Value in Less Than 2 Years
PayPal (PYPL) stock has been badly hit by these changes in the macro landscape as it is trading nearly 75% below its all-time high of $311 per share from July 2021. The decline steepened after the company reported its financial results covering the third and fourth quarters of that year.
During the days of the pandemic, PYPL stock posted record gains as consumers flocked to the internet to buy almost everything they needed and used the company’s platform to pay for those purchases.
Also read: Not Just Employees, Tech Bosses are Also Hurting from the Economic Slowdown
As a result, both its payment volumes and earnings skyrocketed. However, now that the world has gone back to normal, shoppers have partially moved back to their regular habits. In addition, like many other tech companies, PayPal may have also expanded its headcount aggressively during those days to cope with the rising demand for its services.
PayPal is scheduled to report its financial results covering the fourth quarter of the 2022 fiscal year next week and analysts will probably be expecting further details about how the company is preparing for what could be the beginning of a recessionary cycle.
Other Related Articles: