PayPal earnings forecast rises, but stock falls again

PayPal Holdings Inc.’s cost savings story began to materialize in the last quarter as the company beat expectations and executives raised their full-year guidance on net income , although they also reduced the revenue forecast for 2022 in light of the “macro environment.”

The stock fell more than 7% after the close of trading following the earnings release.

PayPalPYPL,
-3.65%
executives are executing a cost reduction program that executives described in the previous earnings report. PayPal reported adjusted earnings of $1.08 per share last quarter, down from $1.11 per share a year earlier, but ahead of the FactSet consensus, which was 96 cents per share. Executives now model adjusted earnings of $4.07 per share to $4.09 per share for the full year, which is ahead of previous guidance of $3.87 per share at 3, $97 per share.

“We are executing everything we can control…and we are preparing cautiously for a challenging macroeconomic environment,” chief executive Dan Schulman told MarketWatch.

Although PayPal executives are feeling more optimistic about 2022 profit targets, they have cut their revenue forecast and are now looking for 10% growth on a currency-neutral basis, compared to previous forecasts calling for 11% growth. %. Management lowered its expectations on a series of guidance metrics throughout the year.

Schulman noted that PayPal was “seeing a pullback in discretionary goods being spent by consumers,” hence why he and the management team felt the need to have a “cautious” Q4 revenue outlook. .

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

Stocks have fallen almost 60% this year, such as the S&P 500 SPX index,
-1.06%
decreased by 21.1%

Read: Amazon rolls out Venmo payment option

The company recognized an increase in engagement, with transactions per active account increasing 13% to 50.1 over a 12-month period. PayPal added 2.9 million new net active accounts in the third quarter, bringing its total to 432 million. The FactSet consensus was 432.9 million active accounts.

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

Schulman explained that the company’s digital wallet has helped improve engagement trends, as PayPal sees twice the level of engagement among those who use the app compared to those who don’t.

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

These developments mark a “significant step forward”, according to Schulman.

See more: Apple will let merchants accept in-person payments with just an iPhone

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

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

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