PayPal's revenue forecast rises, but revenue outlook drives stock down further

PayPal’s revenue forecast rises, but revenue outlook drives stock down further

PayPal Holdings Inc.’s cost savings story began to materialize in the last quarter, but that wasn’t enough to satisfy investors as the digital payments giant also cut its revenue forecast for the month. whole year in light of the “difficult macro-economic environment”. .”

Shares fell 10% in after-hours trading after PayPal PYPL,
executives slashed their 2022 revenue forecast, saying they were 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.

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

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

See also: Block stock soars after earnings as Square parent posts ‘strong all-around beat’

Although PayPal lowered its revenue forecast for the full year, it outperformed in terms of revenue during the 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.

The reduction in full-year revenue guidance offset progress in the cost-cutting program that executives outlined 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.

“While there are a number of unknowns regarding the macroeconomic environment, we can largely control our spending and its implication on earnings growth,” Schulman said on the earnings call. “Of course, we are also focused on investing for growth and balancing efficient spending with continued investments to drive future top line growth.”

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

“We think this is a time when market share leaders are getting stronger,” Schulman said.

PayPal shares have fallen nearly 60% this year, like the S&P 500 SPX index,
decreased by 21.1%

Read: Amazon rolls out Venmo payment option

The company acknowledged an increase in engagement in its most recent quarter, 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 told MarketWatch 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,
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,” Schulman told MarketWatch.

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

Google Pay: “We’ve seen, for example, that Google Pay users in Germany when they add their PayPal credentials to it, there’s a 20% increase in their branded payment transactions.”

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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