PayPal flags smaller basket sizes and cautious shoppers amid macro uncertainty

PayPal saw a slowdown in payments activity in September that continued into October in both the United States and Europe, as consumers became more selective in their purchases, Chief Financial Officer Jamie Miller told analysts on a call.

The company's shares, which had initially risen 17% after PayPal announced a partnership with OpenAI and reported spectacular results, pared some gains during the conference call as investors digested Miller's comments. The stock was last up 10%.

American businesses across sectors are feeling the pressure of a widening gap between low-income consumers and wealthy consumers, and tariffs are adding further uncertainty, as seen in third-quarter earnings reported so far.

“We're seeing basket sizes simply going down. Average order values ​​are going down, particularly in retail, where consumers are known to be more selective, and that behavior has continued into October,” Miller said.

The shift, echoed by major retailers and consumer goods companies, points to a slowdown in discretionary purchases even as daily spending remains stable, leaving the payments sector largely on firm footing. PayPal forecast current-quarter adjusted earnings per share of between $1.23 and $1.27, missing Street expectations of $1.31, according to estimates compiled by LSEG.

“Concerns about a weaker U.S. labor market, signs of financial stress among low-income families and the slower-than-expected pace of interest rate cuts by the U.S. Federal Reserve have added a cyclical element to more structural concerns,” said Russ Mold, chief investment officer at AJ Bell.

However, the end-of-year holiday season, typically a strong period for retailers and payments companies, could help boost spending in the coming months.

Retailers typically rely on the fourth-quarter holiday season for a large portion of annual sales, and spending during Christmas, Black Friday and Thanksgiving helps drive purchases. “The holiday season is very busy. So that's something we're watching,” Miller added.