(Bloomberg) -- The whispers kept swirling: PayPal Holdings Inc.’s visionary leader might leave.

It was late 2022, and shareholders were counting on Dan Schulman to pull the stock out of a yearlong slide that’s erased $279 billion in market value. But after he flew to Italy for his four-day wedding celebration on the banks of Lake Como, denizens of Silicon Valley and Wall Street began buzzing with the notion that PayPal’s longtime leader was ready for a change.

At the end of October, Chairman John Donahoe felt compelled to bat back the speculation: “The board has never discussed replacing Dan,” he said in a statement to Bloomberg. A few months later, Schulman himself announced his plans to go.

So goes the humbling of mighty PayPal — once worth more than Goldman Sachs Group Inc. and Citigroup Inc. combined. After strategy missteps that risk squandering the company’s lead in the lucrative business of online payments, the company is now starting from scratch on a CEO search and a pivotal question: What kind of leader should take over — a cost-cutter or another manager with an ambitious plan for growth?

Schulman himself was once such a replacement for the firm’s legendary founders and early executives — the so-called PayPal Mafia that included billionaires-to-be Elon Musk and Peter Thiel, as well as tech luminaries Reid Hoffman and David Sacks.

But after the CEO signaled a slew of new products in 2021 challenging US banks, the firm suffered an eye-watering change in fortunes. A stock-market value that peaked at $362 billion as Schulman floated the possibility of more than doubling clients to 1 billion, has mostly melted away amid a slowdown in growth, a bungled attempt to buy Pinterest Inc. and the abandonment of key targets.

Now, headhunters are vying for the mandate to find a new CEO and privately conceding it’s an especially tough assignment. Across Silicon Valley and Wall Street, executives are buzzing about who has the ambition to seek an interview.

“We’re looking for the best possible candidate,” Donahoe said in an interview. “It’s a matter of finding the right person in the right place at the right time. And that’s what a search does.”

PayPal got its start as a company called Confinity in 1998 and relatively quickly rose to prominence when it was acquired by eBay Inc., one of the earliest internet juggernauts. Thanks to that alliance, the payments platform signed up more than 100 million users.

By 2014, eBay’s investors were getting antsy. Activist investor Carl Icahn bought a stake and argued that making PayPal independent would better position it to compete for market share against new payment systems from Apple Inc. and Google.

In came Schulman. From the start, he wasn’t the typical finance CEO: The grandson of a union organizer in New York’s garment district, he favored denim and hand-stitched boots, telling tales about learning the Israeli martial art of Krav Maga. Though he had most recently spent four years at American Express Co. running its enterprise growth division, he was better known for his earlier work in the wireless industry.

Growth Era

Schulman helped take PayPal public in 2015. The next year, he made a change that rattled investors but ultimately earned praise — making peace with credit card networks such as Visa Inc. and Mastercard Inc., which PayPal had long counted as enemies.

The detente he hashed out focused on a practice called steering, in which PayPal encouraged customers to link bank accounts — rather than credit or debit cards — to its systems.

PayPal began with Visa, publicly vowing to stop encouraging Visa card users to link their bank accounts to PayPal wallets and instead promising to present Visa cards “as a clear and equal payment option.” The move meant it would have to cough up more to Visa in processing fees, prompting PayPal investors to balk and send the stock into a dive the next day.

“Those decisions were initially met with a lot of skepticism,” Schulman said in an interview, noting it was even questioned by company insiders. But they soon came around as PayPal’s volumes surged. “History proves us out that, really, that decision was what unleashed our growth.”

One after another, more card networks and financial institutions inked similar deals with PayPal, widening the flow of payments through its various platforms. Today, PayPal processes more than $1.36 trillion a year, up from the $282 billion in its first year as a public company.

“There’s a lot for us to be proud of, and there’s a lot we still need to work on,” Schulman acknowledged. “We’ve got our work cut out for us.”

By the start of 2021, PayPal was riding the pandemic’s surge in shopping at home, making it one of the most valuable financial firms in the country. At an investor day that February, executives plotted a path for active users to roughly double to 750 million by the end of 2025. Schulman kept musing about getting to 1 billion.

Then came setbacks. EBay began shifting payments to alternative methods faster than PayPal executives thought possible, eroding growth. Vaccines freed consumers to return to stores. Inflation took off, eating into household budgets and limiting the discretionary spending that is the backbone of PayPal’s business. News that PayPal might bid $45 billion for Pinterest further spooked investors who saw it as a desperate move to grow.

Even Schulman’s plans to add hundreds of millions of new users went awry: Last year, the company closed 4.5 million accounts after finding bad actors were taking advantage of incentives and rewards programs. It ultimately abandoned the target for new signups, instead focusing on enticing existing customers to use its services more.

The company’s stock continued to nosedive, pressuring valuations of closely held rivals. Stripe Inc. has since spoken to potential investors about fresh funding at a valuation tens of billions of dollars lower than the $95 billion the company achieved in an earlier round.

Read more: Wall Street’s fintech binge turns into a writedown hangover

PayPal’s slide attracted another activist investor, Elliott Investment Management.

High-profile executives began leaving, including three who had joined Schulman on stage at the investor day in 2021: finance chief John Rainey, Venmo head Darrell Esch and omni payments leader Jim Magats. The company’s chief product officer, Mark Britto, and top accounting officer, Jeff Karbowski, also exited in recent months.

There’s no formal list of candidates yet to replace Schulman, but the rash of senior departures has left little doubt that PayPal will try to recruit an outsider. 

“Investors are very happy that they’re looking externally because the view is that there isn’t anyone internally,” said Lisa Ellis, an analyst at SVB MoffettNathanson. “You would have wished we weren’t in this position.”

Headhunters trying to brainstorm potential candidates on their own say they can only come up with a few inside the company seen as viable, such as Peggy Alford, who oversees the global sales force and sits on Meta Platforms Inc.’s board. 

“Any name is pure speculation,” PayPal spokesperson Amanda Miller said.

Targeting Expenses

The brevity of such lists underscores how much even the most vocal investors were counting on Schulman to figure things out. Take Elliott: When the activist investor announced a stake in August, it said it was looking forward to working with the CEO.

“I’ve really enjoyed working with Dan,” Jesse Cohn, managing partner at Elliott, said in an interview. “Dan is a strong leader. He’s tough, thoughtful and never stands still. He’s a personal friend, and I look forward to seeing what he does next.”

But in recent months, as Schulman neared his 10th year at PayPal and his 65th birthday, routine conversations about succession gained more urgency, according to people familiar with the matter.

Schulman aims to leave by the end of the year. But he has reassured staff and shareholders he will stick around as long as the board needs for its search. Meanwhile, he continues to rip out costs, cutting thousands of jobs this year and recently announcing that he has identified an additional $600 million in expenses to eliminate.

Last month, he predicted that adjusted profit will climb 18% to $4.87 a share this year, exceeding the $4.75 estimated by analysts.

But that hasn’t turned around the stock, which has slid 7.6% further since the announcement. Altogether, it’s down 76% since its peak in mid-2021.

One reason, according to analysts, is that there’s a worry PayPal shareholders can’t seem to shake: Apple.

The iPhone maker unveiled a foray into payments in September 2014 — the very month that PayPal hired Schulman. After fits and starts, Apple’s system is catching on, with the Apple Pay button appearing on about 28% of top retailers’ websites, inching toward PayPal’s more-static 79%.

PayPal’s popular Venmo app is also facing competition: A consortium of banks launched a rival person-to-person payments system, Zelle, in 2017, leveraging relationships with millions of Americans. Block Inc., which got its start catering to small businesses as Square, offers its own Cash App, too.

Andrew Bauch, an analyst at SMBC Nikko Securities America Inc., predicts PayPal will someday end up the subject of a Harvard Business School case study about a technology pioneer that squandered an incredible lead.

“For that to slip through their grasp and get lapped by so many other next-generation startups, it’s truly shocking to be quite honest,” said Bauch, who predicts PayPal’s stock will underperform. “Part of that is going to be laid at the feet of the CEO.”

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