PayPal lost 25% of its market value in just one day after it reported weak earnings caused by inflation and 4.5 million “illegitimate” accounts that joined its platform

Tech stocks were hammered yesterday after companies like Facebook reported disappointing earnings and stagnated user growth. Block, the fintech service formerly known as Square, also slid 10% on Wednesday. And buy now pay later service Affirm was down 9%.

The carnage didn’t stop there. Payments giant PayPal also lost a quarter of its market value after the company reported weak guidance that it blamed in part on inflation and supply chain issues.

PayPal says continued headwinds from eBay Inc in the first half of this year. PayPal CEO Dan Schulman also pointed to challenges including the transition of former owner eBay to its own payments platform and “exogenous factors” like inflation bringing down consumer spending and supply chain issues “disproportionately impacting” cross-border payments.

In an interview yesterday, PayPal CEO Dan Schulman said the company took “a measured approach” to guidance, but expects revenue to accelerate in the second half of the year.

In addition, PayPal also missed user growth targets. PayPal CFO John Rainey said that 4.5 million “illegitimate” accounts that joined the platform, which “affected our ability to achieve our guidance in the quarter.” The company also walked back its user growth goals, which Rainey said was a “choice” to focus on “sustainable growth and driving engagement.”

To address the user growth and retention problem, the company is changing its strategy. During the earnings call on Wednesday, Schulman said that PayPal previously ran “incentive-based programs” meant to get lapsed users to “reengage” with PayPal’s platform, but these largely failed to drive sustained usage.

However, the move could reduce its outlook for growth in net-new-active accounts as the company shifts its focus toward “higher-value” accounts that are more engaged with the PayPal platform

Meanwhile, Canaccord Genuity Capital Markets analysts wrote in a note Tuesday that PayPal’s challenges are mainly “short-term headwinds.”

“While the pace of growth in net new accounts is expected to moderate in 2022, we are seeing a steady increase in user engagement metrics and expect to see more marketing behind driving engagement in 2022,” the Canaccord note said. “And already PYPL has shown that it remains nimble despite its size in exploiting rapidly emerging opportunities: scaling an impressive Buy Now Pay Later (BNPL) offering and launch of equity trading.”