What happened

Shares of Shopify (SHOP 5.13%) were tumbling in morning trading Wednesday after peer PayPal (PYPL -1.24%) reported disappointing earnings yesterday after the market's close. As of 10:40 a.m. EST, Shopify's stock was down 9.5% while PayPal had lost nearly a quarter of its value.

So what

Fears of runaway inflation and a recession caused by the Federal Reserve raising interest rates to rein in rising prices have weighed on the retail sector after a lackluster Christmas season. PayPal, though, is expecting a hit to its payments business, which has caused it to abruptly shift focus from gaining new customers to generating more revenue from those it already has.

Friends looking at laptop while holding a credit card

Image source: Getty Images.

The fintech stock badly missed Wall Street expectations, forecasting it will add only 15 million to 20 million new active users this year, a third of what it added in 2021, and far below the 53 million analysts were expecting. Also, it will no longer try to achieve 750 million new monthly active users by 2025, as it was previously planning; rather it will focus on increasing engagement with its existing pool of users.

Now what

PayPal's earnings results sent the entire payments sector screaming lower. Beyond Shopify, Block was down 10% in morning trading, Affirm was down nearly 8%, SoFi Technologies and Upstart were off 7% each, and Squarespace was down more than 5%.

The financial results could mean headwinds ahead for other players in the space, but PayPal's goals may just have been too aggressive and grandiose. The payments space is still seen as a big growth market, even though there are a lot of companies vying for a piece of the pie.