PayPal’s earnings forecast is higher, but the revenue forecast pulls the stock down again

PayPal Holdings Inc.’s savings story started playing out last quarter, but it wasn’t enough to satisfy investors as the digital payments giant also cut its full-year revenue forecast in light of a “rough macro environment.” .”

Shares fall 10% after PayPal PYPL.
executives cut their revenue guidance for 2022, saying they were now looking for 10% growth on a currency-neutral basis, compared with a previous forecast that called for 11% growth.

Management lowered expectations for a number of leading indicators during the year.

“We are acting against everything we can control … and are cautiously preparing for a rough macro environment,” Chief Executive Dan Schulman told MarketWatch. He added that PayPal is “seeing a pullback in consumer discretionary spending,” and that’s why he and the executive team felt the need to have a “cautious” revenue forecast for the fourth quarter.

Acting Chief Financial Officer Gabrielle Rabinovitch added on the company’s earnings call that PayPal “did not see the early start to the holiday season” in October that the company sees in 2021.

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PayPal lowered its full-year revenue forecast, but beat the top line in the third quarter. Revenue rose to $6.85 billion from $6.18 billion, while analysts were expecting $6.81 billion. PayPal’s total payment volume rose to $337 billion from $310 billion a year ago. Venmo’s volume was $63.6 billion.

The lowered full-year revenue forecast eclipsed progress on the austerity program that executives noted in their previous earnings report.

PayPal reported adjusted earnings of $1.08 per share in the latest quarter, down from $1.11 per share a year earlier but ahead of the FactSet consensus of 96 cents per share. Executives now model full-year adjusted earnings of $4.07 to $4.09 a share, ahead of their previous forecast of $3.87 to $3.97 a share.

“While there are a number of unknowns with the macro environment, we can largely manage our costs and their impact on revenue growth,” Schulman said on the earnings call. efficient spending with continued investment to ensure.”

He added that the uncertain environment could also create an opportunity for PayPal.

“We think this is a period where the market share leaders are strengthening,” Schulman said.

PayPal shares have fallen about 60% this year, as has the S&P 500 index SPX.
decreased by 21.1%

Read: Amazon introduces Venmo payment option

The company recognized the growth in engagement during the last quarter as transactions per active account rose 13% to 50.1 over the past 12 months. PayPal added 2.9 million net 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 on connecting existing users rather than attracting and retaining less active customers.

Schulman told MarketWatch that the company’s digital wallet has helped drive improved engagement trends, as PayPal sees double the engagement rate between app users and non-users.

PayPal executives Apple Inc. They announced a number of ongoing initiatives with AAPL.
including future participation in Tap to Pay on iPhone, which allows people to use their smartphones as payment acceptance devices without requiring additional equipment. 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 brand-free payment platform.

These developments are a “meaningful step forward,” Schulman told MarketWatch.

He added on the earnings call that the deal with Apple is “a bigger deal than most people think,” given the trends the company has seen with Alphabet Inc.’s GOOG.

Google Pay: “For example, we saw a 20% increase in branded payment transactions when Google Pay users in Germany added their PayPal credentials.”

See more: Apple to allow merchants to accept in-person payments only with iPhone

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

EPS growth in the targeted range would put PayPal in the top quartile of S&P 500 components by metric, Schulman said.

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