“We had a slower-than-expected finish of the year,” Chief Financial Officer John Rainey told analysts Tuesday on a conference call. That was, in part, due to by the “the more muted end of the year for e-commerce growth, driven by both supply-chain challenges as well as pull-back in spending by lower-income consumers.”

PayPal is facing a bevy of headwinds: While online commerce soared in the early days of the pandemic to encompass more than one-fifth of overall retail spending, that share has slipped as supply-chain disruptions hurt shipping times and consumers slowly returned to stores. Consumer spending has also been hindered by once-in-a-generation levels of inflation.

EBay has begun to more rapidly move away from PayPal’s platform in recent quarters, putting pressure on the payment giant. In the final three months of the year, PayPal’s revenue climbed 13% to $6.9 billion, the smallest increase in two years. Excluding the impact of EBay, revenue would have climbed 22%, PayPal said in a statement.

“It was a particularly hard year to forecast,” Chief Executive Officer Dan Schulman said. “EBay’s migration to managed payments happened faster than we anticipated.”

PayPal shares tumbled 17% to $145.96 at 6:26 p.m. in extended New York trading following the announcement, after slipping as low as $144.51. They had advanced 2.2% to $175.80 in regular trading.

Illegitimate Accounts

To gin up activity on its platform, PayPal has been adding new services, including a high-yield savings account as well as the ability to buy and trade cryptocurrencies. Those efforts seem to bearing fruit: Transactions per active account jumped to 45.4 in the quarter, topping the 42.9 average of analyst estimates.

In recent quarters, PayPal had said it believes it will notch 750 million active accounts on its platform by 2025. To achieve that goal, the company has been spending more on marketing campaigns to lure new customers to PayPal’s many offerings.

On Tuesday, the firm abandoned that guidance after a review of its business uncovered 4.5 million accounts it now believes were illegitimately created. Some people were reaping the benefits of the campaigns without ever intending to be ongoing customers, executives said.

PayPal now believes it will add just 15 million to 20 million net new active accounts this year, a significant slowdown from the 49 million it added in 2021. Going forward, the company vowed to focus marketing efforts on encouraging existing users to become even more active.

“Unlike a Netflix or one of these streaming services, a net new active isn’t equal to revenue,” Schulman said in an interview. “For us, every net new active is only as valuable as the number of transactions they make. Those who make one transaction and never use us again, that gives us no incremental value.”

PayPal said it expects revenue this year to climb as much as 17%, compared with a current forecast from analysts of 18%. The company said total payments volume for the year is expected to increase by as much as 24% while adjusted earnings per share may be between $4.60 and $4.75.

“Spending money on lower-value net new actives that are not engaged in the base becomes an increasingly expensive proposition over time and does nothing for our revenue growth,” Schulman said, noting the company is likely to continue to see a drop in inactive customers in the coming months. “There is probably going to be about 20 million incremental one-and-done customers that roll off. That is nothing to our revenue.”