Wall Street analysts said that the company will need to cut costs as its payment volumes fall as customers batten down the hatches to prepare for a possible economic downturn.
The San Jose, California-based digital payments company said on Tuesday it would lay off 7 percent of its workforce, or around 2,000 employees, a move in line with analyst expectations and the firm's previous commitment to rein in costs.
The surging inflation and the fear of a recession have limited digital payments and e-commerce spending, so PayPal has been under pressure for most of the last year.
Over the past year, improvement of margins has been a focus for management, possibly due to the pressure from activist Elliott Investment Management, and this looks like another step in that direction, Morningstar analyst Brett Horn said.
Some analysts believe that the latest job cuts were under pressure from Elliot, which took a stake in the company in August.
Horn said that PayPal still has room to cut costs because of the potential to improve margins over time.
The company cut its revenue growth forecast when it reported its third quarter results in November.
There is little reason for investors to be bullish about PayPal's growth in the medium term, as demand continues to soften, according to Jefferies analysts.
The company's shares fell by 0.3 per cent in premarket trading on Wednesday.