PayPal (PYPL) – Get Free Report shares jumped higher Monday after the payments group agreed to sell around €40 billion in buy now, pay later loans originated in Europe to private equity group KKR (KKR) – Get Free Report.
The loan book sale, valued at around $44 billion, is expected to generate around $1.8 billion in gross proceeds for PayPal over the second half of this year, the company said, around $1 billion of which will be directed to buying back PayPal shares.
The deal will allow PayPal to continue offering buy now, pay later loans, which is uses to bring new users — particularly in younger demographics — to its key payment services division without weighing down its balance sheet.
The buy now, pay later loan sales come amid concern over weakening profit margins at PayPal even as the group pledged to take out millions in costs, including a 7% reduction of its workforce, since the start of the year.
“Buy now, pay later has become a major asset to PayPal’s checkout experience, driving engagement, payment volume growth, and repeat use while delivering high-value customers to our merchants,” said PayPal’s acting CFO Gabrielle Rabinovitch.
“Our collaboration with KKR will allow us to accelerate our PayPal Pay Later originations alongside market demand in Europe while preserving free cash flow for other strategic initiatives,” she added. “This transaction is yet another example of our disciplined approach to capital allocation.”
PayPal shares were marked 2.1% higher in pre-market trading following news of the KKR deal to indicate an opening bell price of $67.83 each.
PayPal said adjusted earnings for the three months ending in March rose 44.4% from last year to $1.17 per share, well ahead of Street forecasts, with revenues up 8.6% to $7.04 billion and payments volumes up 12% to $354.5 billion.
June quarter earnings, however, were forecast between $1.15 and $1.17 per share, just shy of Refinitiv estimates, suggesting the cost cuts will have limited impact on margins over the second half of the year, which Rabinovitch said would be “modest”.
Earlier this year, longtime PayPal CEO Daniel Schulman said he would step down at the end of 2023, saying in a statement that he wants to “devote more time to my passions outside the workplace”. He will, however, continue to serve on the group’s board of directors.