PayPal earnings forecast heads higher, but the stock is heading lower yet again

The Cost Savings Story of PayPal Holdings Inc. started in the latest quarter, as the company beat expectations and executives raised their full-year guidance on the bottom line, although they also cut their 2022 revenue forecast in light of “rough.” macro environment”.

Shares fell more than 7% in after-hours trading after the results were released.

PayPal PYPL,
-3.65%
executives are implementing a cost-savings program that executives outlined in previous earnings reports. PayPal reported adjusted earnings of $1.08 per share in the latest quarter, up from $1.11 a year earlier, but ahead of the FactSet consensus of 96 cents per share. Executives are now modeling $4.07 per share to $4.09 per share in adjusted earnings for the full year, ahead of a previous forecast that called for $3.87 to $3.97 per share.

“We’re going against everything we can control … and carefully preparing for a rough macro environment,” CEO Dan Shulman told MarketWatch.

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While PayPal executives are upbeat about revenue targets for 2022, they have lowered their revenue guidance and are now looking for 10% growth on a currency-neutral basis, compared to an earlier forecast of 11% growth. Management has lowered expectations for a number of guidance metrics for the year.

Shulman noted that PayPal is seeing “a return to discretionary consumer spending,” so he and the executive team felt the need to have a “reasonable” fourth-quarter earnings outlook.

Third-quarter revenue rose to $6.85 billion from $6.18 billion, while analysts had forecast $6.81 billion. PayPal’s total payment volume rose to $337 billion from $310 billion a year earlier. Venmo’s revenue was $63.6 billion.

Shares are down nearly 60% this year as the S&P 500 SPX,
-1.06%
decreased by 21.1%

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Read: Amazon Offers Venmo Payment Options

The company recognized the increase in engagement as transactions per active account increased by 13% to 50.1 in the trailing 12 months. PayPal added 2.9 million new active accounts in the third quarter, bringing its total to 432 million. The FactSet consensus was for 432.9 million active accounts.

Earlier this year, PayPal began focusing more on building engagement with existing users rather than attracting and retaining less active customers.

Shulman explained that the company’s digital wallet has helped drive better engagement trends, with PayPal seeing twice the engagement rate of those who use the app than those who don’t.

PayPal executives have several initiatives with Apple Inc. AAPL announced
-4.24%,
including future participation in the Tap to Pay on iPhone program, which allows people to use their smartphones as payment acceptance devices without the need for additional hardware. Additionally, PayPal and Venmo debit and credit cards will be eligible for Apple Wallet next year. PayPal also plans to add Apple Pay as a payment option on its unbranded checkout platform.

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According to Shulman, these developments are a “meaningful step forward.”

See more: Apple allows merchants to accept personal payments with iPhone only

Executives offered a first look at expectations for 2023 in an investor presentation on Thursday. They are targeting adjusted EPS growth of at least 15% as well as at least 100 basis points of operating margin expansion.

EPS growth within the target range would put PayPal in the top quarter of S&P 500 components on the metric, Shulman said.

Source

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