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

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

PayPal Holdings Inc.’s cost-savings story began to play out in the latest quarter as the company beat expectations and executives raised their full-year forecast on the bottom line, though they also reduced the 2022 revenue forecast in light of the “rough macroenvironment.”

The stock fell more than 7% in after-hours trading following the release of the results.

PayPalPYPL,
-3.65%
executives are executing a cost-savings program that executives outlined in the previous earnings report. PayPal reported adjusted earnings of $1.08 a share in the latest quarter, down from $1.11 a share a year before but ahead of the FactSet consensus, which was for 96 cents a share. Executives now model $4.07 a share to $4.09 a share in adjusted earnings for the full year, which is ahead of the prior forecast that called for $3.87 a share to $3.97 a share.

“We’re executing against all the things we can control…and preparing cautiously for a rough macro environment,” Chief Executive Dan Schulman told MarketWatch.

Though PayPal executives are feeling more upbeat about earnings targets for 2022, they trimmed their revenue guidance and are now looking for 10% growth on a currency-neutral basis, whereas the prior forecast called for 11% growth. Management has cut expectations on a series of guidance metrics throughout the year.

Schulman noted that PayPal was “seeing a pullback in discretionary goods that are being spent on by consumers,” hence why he and the executive team felt the need to have a “prudent” revenue outlook for the fourth quarter.

Revenue for the third quarter climbed to $6.85 billion from $6.18 billion, while analysts had been projecting $6.81 billion. PayPal’s total payment volume rose to $337 billion from $310 billion a year prior. Venmo volume was $63.6 billion.

Shares have fallen nearly 60% this year, as the S&P 500 index SPX,
-1.06%
has declined 21.1%

Read: Amazon rolling out Venmo payment option

The company recognized a boost in engagement as transactions per active account rose 13% to 50.1 over a trailing 12-month period. 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 to shift its focus more on generating engagement among existing users than on attracting and retaining less active customers.

Schulman explained that the company’s digital wallet has helped drive improved engagement trends, as PayPal sees two times the level of engagement among those who use the app versus those who don’t.

PayPal executives announced several initiatives in progress with Apple Inc. AAPL,
-4.24%,
including future participation in the Tap to Pay on iPhone program that lets people use their smartphones as payment-acceptance devices 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 checkout platform.

Those developments mark a “meaningful step forward,” according to Schulman.

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

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

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

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