Digital payments pioneer PayPal Holdings has begun a “large-scale initiative” to update its “existing technology infrastructure” at an estimated cost of as much as $300 million, the company said.
The effort is expected to occur over 18 to 42 months and resulted in a $95 million charge during the second quarter, including for employee severance and benefits costs, according to a PayPal quarterly filing Tuesday with the Securities and Exchange Commission. The workforce reductions associated with the plan are expected to be completed by 2027, the filing said.
It’s a major “existential” technology upgrade for a company that’s considered the “grand-daddy” of the fintech industry, TD Cowen analyst Bryan Bergin said in an interview. It’s a part of providing the technology support for their new initiatives and re-accelerating growth, he said, referring to plans laid out at a February meeting with investors and analysts by PayPal CEO Alex Chriss and other executives.
“Large organizations need modern technology, and that's a component of this,” Bergin explained in a Thursday interview. “So a lot of this has to do with making sure they are on the most modern technology, and it is also about consolidating disparate systems behind the scenes.”
The company laid out the benefits it’s seeking by way of the restructuring in its quarterly filing. “Management undertook a large-scale initiative (the ‘Q2 2025 Plan’) to re-engineer our existing technology infrastructure to improve scalability, reduce network latency, decrease operational costs, and optimize our workforce,” the filing said.
A spokesperson for the San Jose, California-based company declined to comment on the workforce reduction beyond the quarterly filing, which didn’t specify how many employees will be cut.
The restructuring was mentioned only briefly during a Tuesday webcast with analysts to discuss the company’s second-quarter financial results.
“You'll also see in our (second-quarter) materials that we recorded restructuring costs of approximately $92 million,” PayPal’s chief financial officer, Jamie Miller, told analysts during the webcast, referencing a non-GAAP figure. “These costs are related to workforce actions and the key tech transformation initiatives that we discussed in our investor day,” she said.
Chriss, who took the top post in September 2023, has replaced much of the company’s management team and set a new strategic course since taking over from Dan Schulman, who struggled to expand the company’s business after a temporary benefit from COVID-19 e-commerce activity.
The three-year initiative will “re-engineer infrastructure, streamline operations and exit certain data centers as we unify platforms and migrate more to cloud-based solutions,” Miller said. Benefits of the overhaul will include increased speed, more flexibility in operations, better data utilization and increased scalability, she added.
Based on the quarterly disclosure, the company expects to absorb as much as $300 million in overall cost reductions under the restructuring plan over time.
Overall, PayPal forecast $90 million to $100 million in employee severance costs; $40 million to $60 million in accelerated depreciation expense; and other costs of $110 million to $140 million related to the initiative, the filing said.
Some of the other costs are related to the re-engineering work, migration to cloud-based software expense, contractor costs, consulting fees, prepaid software expense and maintenance costs, the filing said. Still, the plan is still developing and the cost estimates could change, PayPal noted.
The restructuring is also designed to allow the company to better compete with a slew of fintechs entering the payments arena. The current PayPal management team is showing “more urgency in ultimately modernizing the company because if you don't it's going to be much more difficult in to compete with digital, native players built on stacks today,” Bergin said.
Despite some macroeconomic headwinds this year, including related to U.S. tariffs, the company’s PayPal namesake payments business for merchants, its Braintree offering for larger businesses and Venmo peer-to-peer system continued to expand.
The company’s second-quarter payments volume rose 6%, or 5% on a foreign exchange neutral basis, including 45%-plus growth in its Venmo volume and 20%-plus growth in buy now, pay later payments volume, the earnings report showed.
Second-quarter net income rose 12% over the year-ago period to $1.26 billion as revenue climbed 5% to $8.29 billion, including a 20% jump in revenue from Venmo, PayPal said.
Second-quarter sales and administrative expense dropped 19% to $461 million from a year ago, according to the earnings report, likely reflecting the smaller workforce. Those costs typically include labor expenses.
As of the end of last year, PayPal had about 24,400 employees worldwide, including about 8,900 in the U.S., according to the company’s annual filing with the SEC in February.
PayPal also noted a “workforce reduction” that began in the first quarter related to a new regulation in an unidentified international market, saying in the quarterly filing that it resulted in costs for the first half of the year of $36 million.
Restructuring and related costs have been a reality for the company for the past two years.
While the overall “restructuring and other” charge for the second quarter this year was 3% higher at $116 million relative to the same quarter last year, PayPal’s $182 million expense for the first half of this year was 44% lower than for the first half of 2024, according to the filing.
Disclaimer: This story is auto-aggregated by a computer program and has not been created or edited by finopulse.
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