PayPal (PYPL) shares on Monday jumped 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).
The loan-book sale, valued at around $43.7 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 the proceeds will be directed to buying back PayPal shares.
The deal will enable PayPal to continue offering buy now, pay later loans, which are designed 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 about thinning 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' a Key PayPal Service
"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 chief financial officer, 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 1.9% higher in early Tuesday trading following news of the KKR deal, compared to a 0.2% decline for the Nasdaq, to change hands at $67.70 each.
PayPal had reported that adjusted earnings for the three months ended in March rose 44% from a year earlier to $1.17 per share, well ahead of Wall Street forecasts. Revenue grew 8.6% to $7.04 billion and payments volumes were up 12% to $354.5 billion.
June-quarter earnings, however, were forecast at $1.15 and $1.17 a share, just shy of Refinitiv estimates, suggesting that the cost cuts will have limited impact on profit 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 to "devote more time to my passions outside the workplace." He will, however, continue to serve on the group's board.
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