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PayPal stock surges after activist investor Elliott takes $2 billion stake

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Yahoo Finance Live anchors Julie Hyman, Brian Sozzi and Brad Smith discuss MicroStrategy CEO Michael Saylor stepping down, plus second-quarter earnings.

Video Transcript

- Welcome back, everyone. PayPal stocks surging this morning after a packed earnings report, the company confirming activist Elliott Management's $2 billion investment in the investment that they made, also announcing a new CFO, PayPal did, and a $15 billion share buyback program, so a lot to dive into here. There you're taking a look at the actuals versus the estimates, being on top and bottom line there. But again, it came back to the role of Elliott and what we've been discussing for seemingly the past week and a half now as well.

- Look, I've been covering PayPal close to seven years. I've only known by and large, guys, this company in red hot growth mode. But something happened at PayPal the past year and a half. Folks that I've talked to have sensed or called out a sense of complacency, maybe a bunch of team members just only know winning, not getting it done. And then secondarily a lot of bloat has come into the organization, chasing various initiatives.

So here we have Elliott here and a very different tone by PayPal CEO Dan Schulman on that conference call. I was just shocked to hear Dan Schulman, one of the most well regarded CEOs in corporate America, and him too only known for growth at PayPal, calling out a $900 million cost cutting initiative at this company.

They're pulling back on stock trading and moving into that area, pulling back in other areas, reallocation of resources, and more of a focus on Venmo. You just got the sense they have now hit the reset button, in large part because Elliott has been in there shaking the trees at PayPal and said, guys, get this done. You need to improve your profit margins. And you need to do it, like, yesterday.

- It's so interesting to me also this week the two Elliott investments and the tone that they've been taking, Pinterest and PayPal, the tone they've been taking with those investments, basically that the leadership of companies are doing the right thing. And so that was the approach that they seem to be taking, at least for now, with PayPal as well, is they become the company's largest shareholder with that $2 billion stake.

And Jessie Cohen, a managing partner for Elliott, said in a statement, Elliott strongly believes in the value proposition. And it's got a right to win over the near and long term, so again, sort of interesting here. Now, that tone can change, of course--

- Yes.

- --if PayPal does not do, continue to do, what Elliott is looking for. But for now, that also seems to be another potentially good sign.

- One good source mentioned to me this morning that while they appreciate all these new initiatives from PayPal, the $15 billion buyback, the $900 million in cost cuts, which will probably lead to a bunch of layoffs at PayPal coming very, very soon, you can't financial re-engineer the company to success. They have to start launching and developing better products and executing on that front. So a lot of these initiatives put forward by Elliott good in the short term, potentially, for profit, but longer term, to be determined.

- While also retaining the user base that they've seen for even the subsidiary in Venmo, which was largely looked at this next big engine for customer lifetime value here. As of right now, for the total payment volumes that it's transacting, it's still just barely under 20% of the total payment volume that PayPal is seeing in totality.

And so continuing to see that move higher and then an additional kind of wave of subscriptions or users of, Venmo especially as they're trying to really peg that as the banking or at least the card type of institution that many users will look at it as with the instant transfers and also having the debit or credit card features that they want to roll out and continue to have people engage with as well.