PayPal's new CEO faces these 3 big challenges

PayPal's (PYPL) new CEO and Dan Schulman's successor, Alex Chriss, is walking into a hornets' nest.

The past few years haven't been easy for the payments giant.

At the center of PayPal’s problems are weak margins — a problem that has followed the company for years, coming up quarter after quarter — and visible but underperforming products. For instance, Venmo, which is part of the company’s Braintree division, still has a long way to go in terms of monetizing its substantial user base.

And just last year, PayPal was subject to a standoff with Elliott Management. Though the activist investor has since backed off — this week revealing that it had dissolved its stake in PayPal altogether — the damage has been done, and the concerns that Elliott raised, especially surrounding margins, still remain.

So far this year, PayPal stock has declined more than 16% despite a broader tech rally.

Here are the top three challenges that Chriss will face when he takes the helm at PayPal on Sept. 27.

Good growth is hard to find

Though PayPal has often succeeded in finding growth, it hasn't always been the growth that investors were hoping for.

Take PayPal's second quarter, for example. The company saw 11% total payment volume growth, 7% revenue growth, and 8% growth within branded checkout. However, the gross profit numbers didn't follow, coming in at a mere 1% growth. The company also missed on its adjusted operating margin of 21.4%, given Wall Street's estimate of 22%.

These concerns about PayPal's ability to grow while optimizing its margins have kept many analysts cautious at best.

"We remain on the sidelines and await greater confidence in PayPal’s growth algorithm as we see concerns in the longer-term EPS growth profile," John Davis of Raymond James wrote on Aug. 2.

Competition from Apple and Square has heated up

PayPal has long benefited from being one of the first-ever fintechs, weaving together tech and financial services way before it was a well-trodden path.

However, products from Square's parent company Block (SQ) and Apple (AAPL) have been gaining ground at a rapid clip, a process of adoption that shows no signs of slowing. That competition has encroached on PayPal's lead in the space, including Venmo.

A 2023 Deutsche Bank survey, based on responses from 1,708 consumers, showed that PayPal has retained its dominance, but its lead is fragile as adoption rates shoot up for Apple Pay and Block's Cash App.

"While PYPL continues to be the dominant mobile payment service with 71% of respondents having used the service in the past 12 months, Cash App and Apple Pay both saw large increases in adoption over the past year reaching 46% and 31% adoption, respectively, up from 31% and 23%, respectively, last year," Deutsche Bank analyst Bryan Keane wrote in April.

Big shoes to fill

Chriss — who was at Intuit for almost two decades — will be coming into PayPal as an outsider, and that will present challenges.

"Coming from the outside, whatever your credentials or accomplishments, you are going to face fear-based skepticism," Peerage Capital founder and entrepreneur Miles Nadal said. "No matter how urgent the need for change, people fear it. That’s further amplified by an outside appointment that sends the signal there is an appetite for change at the highest levels of the organization."

Furthermore, Chriss will be stepping in for Schulman, a notable figure in his own right. Even before PayPal, Schulman made his mark as the founding CEO of Virgin Mobile, a formative CEO of Priceline, and a key executive at American Express.

In some ways, this is almost the equivalent of a new CEO taking on the job of a tech CEO-founder, as Schulman has become indelibly associated with PayPal. Schulman stepped in at PayPal in 2014, as the company was separating from eBay (EBAY), and has been PayPal's CEO for the entirety of its tenure as a public company.

But PayPal (and its shareholders and activists) have spoken, and it's time for PayPal to head in a new direction.

Chriss's first task on Sept. 27 will be gaining trust — something that could be more complicated than filling Schulman's shoes or getting margins in order.

"The first challenge is demonstrating the credibility, purpose, and the clear direction required to win internal and external stakeholder trust," said Nadal. "That trust then translates into support."

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.

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