Shares of payments-company Block (SQ 2.63%) fell as much as 12.6% in trading on Wednesday after competitor PayPal (PYPL -0.10%) reported less-than-stellar guidance for 2022. Shares are down 10.4% at 3:30 p.m. ET and have struggled to build any momentum today.
Paypal's quarterly revenue of $6.92 billion was slightly ahead of estimates, and earnings per share of $1.11 only missed by $0.01, but guidance was well below what investors were expecting. Management expects revenue to grow 15% to 17% on a currency-neutral basis, which was slightly below the 17.9% that analysts were expecting. Earnings are expected to be $2.97 to $3.15 per share, down from $3.52 on higher inflation and supply-chain issues, which is impacting e-commerce spending for some customers.
The implication is that Block will also have a relatively disappointing 2022, as buyers and sellers return to more normal activity. But that may not be the case. Square and the Cash App were actually hit very hard by the pandemic because they're often used by physical merchants, while PayPal is more e-commerce focused. Until we get results from Block, the market is lumping the two together for better or worse.
The sell-off across tech stocks has hit companies like Block and PayPal hard, and this is making things worse. But even after the disappointing results, PayPal is expecting to grow double digits in 2022. Block could see similar numbers when it reports, and I think that long term, these companies will end up being great stocks to hold for investors, even if it's volatile along the way.