What happened

Shares of PayPal (PYPL -0.97%) have cratered 24% from last Friday's close week to date, according to data provided by S&P Global Market Intelligence, following an earnings report that just about brought down the entire payments segment.

Although PayPal's actual fourth-quarter results really weren't so bad, it was its outlook for the coming year and a dramatic change in direction it's taking that caused shares of Affirm, Block, SoFi Technologies, Shopify, and Upstart to all tumble in its wake.

Person making contactless payment

Image source: Getty Images.

So what

Revenue for the quarter was up 14% to $6.9 billion as PayPal's total payment volume (TPV) grew 23% year over year. For all of 2021, TPV surged 33% to $1.25 trillion. However, that didn't translate into profits, as operating income was flat and earnings per share sank 49% from last year.

What really caught Wall Street's attention, though, was PayPal's forecast that it would only add 15 million to 20 million new active users this year, or only a third of what it added in 2021, and far below the 53 million analysts were anticipating. 

Perhaps more ominous was PayPal saying it was abandoning its goal of trying to add 750 million new monthly active users by 2025 and instead focusing on generating more revenue from its existing base of users. The move suggested PayPal foresees a period of slowing growth on the horizon.

Now what

Arguably PayPal might have been too aggressive in its plans for growth and is now being more realistic about what's achievable. And it's still planning on enjoying robust growth in the years to come.

For example, it expects adjusted revenue to increase around 20% next year at the midpoint of its guidance, and total payment volume should rise by more than 22%, neither of which is shabby at all considering it excludes eBay (EBAY 0.40%), which is moving to its own payments system.

And part of the rationale for the few new adds the fintech stock expects to realize is because it is going up this year against a period where the government had been doling out hundreds of billions of dollars in stimulus checks. Now that the spigot has been turned off, it's natural to expect a slowdown to occur.

The market may have overreacted to the news, but may still want to wait to see how it shakes out.