Despite initial praise from Wall Street, PayPal CEO's first year has been challenging for the struggling payments company.

• Alex Chriss, PayPal CEO, completed his first year at the company amidst a prolonged financial slump.
• Since 2020, the stock's best quarterly performance was achieved in the third quarter, which ended on Monday, thanks to cost cuts and improved margins, resulting in a 34% increase.
• Dan Dolev, an analyst at Mizuho Securities, stated that the news flow has been out of this world amazing in terms of managing expectations.

As CEO, Alex Chriss, after about 100 days on the job, confidently told CNBC's David Faber that the payments company hadn't had much to celebrate in recent years. However, he was prepared to "shock the world."

In a recent interview on "Squawk on the Street," Chriss stated that he enjoys being an underdog, in response to a query regarding recent analyst downgrades.

Dan Dolev of Mizuho Securities was among the skeptics who cut his rating to a hold on Jan. 16, the day before Chriss' CNBC appearance. His report, "PayPal faces competitive pressure from 'A' to 'Z,'" headlined the A for Pay and the Z for payments app Zelle, a money transfer service jointly owned by seven of the top U.S. banks.

In its fourth-quarter earnings report, PayPal provided weak guidance, causing the stock to drop 11% and validating Dolev's worries.

PayPal's market cap had decreased by more than 80% since its peak in mid-2021. The company had recently laid off about 2,500 employees, or 9% of its workforce, and was experiencing single-digit growth. Wall Street analysts noted the increasing competition and declining take rate, or the percentage of revenue PayPal retains from each transaction.

Today, the 26-year-old Silicon Valley company and its 47-year-old CEO have a brighter future.

On Friday, Chriss marked his one-year anniversary as leader. In the third quarter, which ended on Monday, PayPal shares experienced a 34% increase, their largest quarterly gain since mid-2020. This surge was driven by the early days of the Covid pandemic, which led to an increase in online shopping. Notably, PayPal outperformed the Nasdaq in the third quarter, with a gain of 2.6% compared to PayPal's 34%. This was the first time in eight quarters that PayPal outperformed the Nasdaq.

In May, Dolev boosted his rating back to a buy. In July, the company revised its full-year profit forecast for the second time and increased share repurchases. Chriss stated in the earnings release that the company was now operating from a position of strength. As a result, the stock experienced a nearly 9% increase, its best day since late 2022.

"Dolev stated, "I believe he has been an outstanding success story up until now, and the news coverage has been exceptional, particularly in how they handle expectations.""

In early July, James Friedman of Susquehanna raised his rating on PayPal to a buy, stating that Chriss was "setting the bar high" with his comments on CNBC. However, he added that Chriss had been delivering on his bold promise to shareholders.

"Friedman stated that he was shocked by how he managed to surpass his expectations."

The success of Chriss has been linked to enhanced transaction profits and optimized revenue from significant purchases such as Braintree, a credit card processing platform, and Venmo, a payments app that is gaining traction among businesses.

After replacing Dan Schulman, who retired after nearly a decade as CEO, Chriss has reignited excitement on Wall Street by streamlining the organization and refocusing on profitability.

"Dana Stalder, a startup investor at Matrix Partners who served as PayPal's commercial chief from 2004 to 2008, stated that it was time for some new blood at PayPal. He added that PayPal's new CEO has made a lot of changes very quickly and has substantially increased the focus on the consumer, which is the right thing."

'Wholesale changes' in leadership

Now comes the harder part — reigniting growth.

According to LSEG, analysts predict that PayPal will report approximately 6% revenue growth in the third quarter, with a projected growth rate of 5.5% for the fourth quarter. Sales are expected to see only slight growth in 2024, with analysts forecasting under 8% growth for the full year.

PayPal didn't make Chriss available for an interview for this story.

In the July earnings call, Chriss stated that although change requires time and there is still much work to be done, the company is well-positioned, has the right leadership in place, and is moving forward at full speed.

Chriss, who had spent 19 years at a tax software provider before joining PayPal, quickly began restructuring the management team. In November, he appointed Isabel Cruz as chief people officer, Michelle Gill to head the new small business and financial services group, Diego Scotti to oversee the consumer group, marketing, and communications, and Jamie Miller as CFO.

"Stalder stated that based on his observation, the leadership team has undergone significant changes, with the majority of them being replaced."

In his early years at PayPal, Chriss openly stated his belief that the company's struggles were due to an overly aggressive expansion strategy that relied heavily on deal making.

"In a January interview with Faber, Chriss stated that the company has been defocused due to too many acquisitions over the past few years, which he noticed after joining the company 100 days ago."

Chriss stated that the company had identified five priorities, all aimed at achieving profitable growth.

To improve the profitability of its core business, Chriss emphasized the importance of transaction margin dollars as the key metric to fix. To address the declining margin, he proposed offering merchants additional value-added services, such as integrating data points at checkout to reduce cart abandonment rates.

In January, he stated that 35 million merchants use PayPal, and improving their conversion rate benefits both their business and PayPal's bottom line.

PayPal reported that its branded checkout, Braintree, and Venmo helped it achieve its highest growth rate in transaction margin dollars since 2021, with an increase of 8% to $3.6 billion.

Intuit is the ideal training ground for mastering stock recovery, according to Susquehanna's Friedman. Speaking to executives there is like "talking to a dashboard," he said.

"Friedman emphasizes the importance of focusing on what matters most in order to increase profitability in engineering a higher stock," Chriss stated.

Venmo, initially a consumer app with no transaction fees, is now being used by businesses such as Ticketmaster as a payment option for consumers.

Singing at the gas pump

Another priority for PayPal is to become more competitive at the point-of-sale, which has led them to partner with Will Ferrell.

Last month, the company launched a national campaign for PayPal Everywhere, which offers 5% cash back for using a PayPal debit card within the mobile app. In a commercial, Ferrell, the pitchman, can be seen using the PayPal app to buy lemonade and gas while singing a parody of Fleetwood Mac's "Everywhere."

Stalder claims that PayPal lags behind Apple and Samsung, who have established dominant smartphone operating systems with their own integrated digital wallets.

"Stalder stated that PayPal has faced challenges due to its lack of convenience compared to mobile wallets, which is the primary reason for its limited use. Additionally, PayPal has not been able to function effectively without an internet connection."

Apple has opened the Secure Element on iOS, allowing other developers to use the phone for contactless payments, which presents a real opportunity for PayPal.

Stalder stated that PayPal's first foray into mobile wallets enabled the company to make significant progress in offline payments.

PayPal's other point-of-sale product is called Fastlane, a one-click payment option for online sales that can compete with Apple Pay and Shop Pay. In August, fintech platform PayPal made Fastlane available to businesses in the U.S. and plans to expand the offering globally in the future.

During the earnings call, Chriss informed investors that the company is intensely focused on fulfilling the holiday demand.

"To make it easier for small businesses to use our platform during the holidays, we need to ensure it's available on multiple platforms. Additionally, many of our large enterprises are requesting access to it before the holidays."

'No drama'

Intuit's long-time employee, Chriss, has a deep understanding of the intricacies of small- and medium-sized businesses. This knowledge could be valuable as PayPal focuses on providing payment and checkout solutions to SMBs.

According to Sanjay Sakhrani, an analyst at KBW, PayPal can achieve better economics by expanding into the enterprise market, where competition is fierce.

Sakhrani, who has a buy rating on the stock, believes that expanding their reach could be quite profitable.

SMBs represent an "untapped opportunity for us," as Chriss stated on the earnings call, noting that these companies are seeking a more streamlined solution rather than piecing together 17 different options.

"Chriss stated in July that small businesses are struggling to acquire customers and retain them. They must be able to connect with customers, convert them, and then reconnect with them."

Oren Zeev, a venture capitalist, has worked with Chriss in a different capacity, serving together on the board of Houzz, a home design startup that caters to architects and contractors.

"Zeev described Chriss as "no drama" and "respected by everyone," and it was evident that Chriss had brought a lot to the table with his extensive experience in managing small businesses."

Despite capturing the respect of investors and increasing PayPal's market cap by over $20 billion in the past year, there is still much work to be done.

Sakhrani says shareholders are anxiously awaiting his multiple-year outlook instead of just trying to fix some of the stuff that was broken.

Sakhrani stated that there will be pressure in the near future for more clarity regarding that matter.

Chriss, for his part, isn't declaring victory.

"Our teams are working with urgency, thrilled about our innovation and focused on execution," he stated during the second-quarter earnings call. "Although we have made significant progress in several areas, we recognize that there is still much work to be done and we must do it faster."

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