Grabar Law Office is investigating potential claims against the officers and directors of PayPal Holdings, Inc. on behalf of current stockholders.

Federal securities class actions have been filed on behalf of all persons or entities who purchased PayPal common stock between February 3, 2021, and February 1, 2022, inclusive (the “Class Period”) against PayPal and certain of its officers (collectively “Defendants”).

It is alleged that throughout the Class Period, PayPal touted the massive growth in its Net New Active Accounts (NNAs) and instructed investors to value the high growth in this metric as one of the most important indicators of how the Company was performing. That’s because in theory, the more accounts on the platform, the more opportunity there will be to earn transaction fees from the ever-increasing number of accounts.

Also, during this period, PayPal was continuing to lose a large portion of historical business with E-bay. Thus, PayPal was under tremendous pressure to make up for that lost business and show investors it could grow despite the significant loss of its E-bay business.

To boost the NNA metric, in 2021, PayPal offered ten dollars to customers who opened new accounts on the platform. In February 2021, PayPal predicted that it would add 50 million new users in 2021 and that it would have 750 million total active customer accounts on its platform by 2025, essentially doubling the number of active accounts within four years.

In PayPal’s most recent Proxy statement, it was explained that “[T]he Compensation Committee believes that NNAs reinforces the critical importance of growing our customer base to build for the future. The number of NNAs is also a key operational metric that the Company uses internally to measure ongoing performance.”

Undisclosed to investors, however, and as Defendants have now admitted, while touting its NNA growth, PayPal failed to disclose that many of the additional users acquired through its cash account creation incentive campaigns were illusory, as they were easily susceptible to fraud in the form of bot farms, that were able to systematically take advantage of PayPal’s $10.00 account opening by creating millions of illegitimate accounts, which ultimately generated no future revenue for the Company.

In addition, investors were unaware of the lengths the Company was going to keep inactive customers and fake bot accounts on the platform to prevent churn and inflate its NNA guidance.

The truth was disclosed on February 1, 2022 when PayPal reported that its NNAs were only 49 million for 2021, less than the guidance of 50 million it initially provided in February 2021 and that “in connection with the increased use of cash incentive campaigns throughout 2021, [it] identified 4.5 million accounts that “it” believes(s) were illegitimately created,” and that as a result the Company changed course on some of its customer acquisition strategies including incentive-led campaigns in the fourth quarter. Further, because the Company was evolving its customer acquisition and engagement strategy, PayPal now expects only 15-20 million net new customer accounts for 2022 and that the Company “no longer believe(s) that the 750 million medium-term account aspiration [it] set last year, is appropriate.”

On these disclosures, PayPal’s stock price fell $43.23, or 25% in one-day, to close at $132.57 per share on February 2, 2022 – representing a $62 billion drop in market capitalization.

If you have held PayPal shares since on or before February 3, 2021, you may be able seek corporate reforms, the return of funds expended defending litigation back to company coffers, and potentially a court approved incentive award if appropriate.

If you would like to learn more about this matter at no cost to you, contact us at jgrabar@grabarlaw.com or call 267-507-6085.