PayPal
Holdings is giving Wall Street a sliver of hope that its turnaround efforts are under way.
Third quarter results at the payments company topped analyst expectations. Also encouraging was that
PayPal
(ticker: PYPL) raised its full-year earnings forecast and announced a new chief financial officer, Jamie Miller, a former CFO at EY. Miller starts at PayPal on Nov. 6.
Filling that vacancy, which had been in place for nearly eight months, was an important task for PayPal’s new chief executive, Alex Chriss, who just took the top spot last month. Now Chriss has to prove he’s ready to lead the company.
“My first 30 days leading PayPal have confirmed my belief in the company’s strong assets and market position. Now, we must harness these strengths and put the weight of the organization behind our most important priorities,” Chriss said in a statement Wednesday.
So far, he’s given Wall Street something to like.
PayPal’s earnings, when adjusted for asset impairment charges, climbed 20% year-over-year, amounting to $1.30 per share, well ahead of the $1.23 per share anticipated by analysts surveyed by FactSet. Revenue of $7.4 billion was 8% higher than the year-ago quarter and in-line with analyst projections.
Total payment volume climbed 13% to $387.8 billion on a currency-adjusted basis compared with last year. Total active accounts, however, slid by four million to 428 million.
PayPal shares were up 4.5% to $53.95 in after-hours trading.
In light of third quarter results, PayPal said it expects full-year 2023 earnings to reach $3.75 per share based on generally accepted accounting principles, or GAAP. That would be ahead of consensus estimates for $3.57. On a non-GAAP basis, earnings are expected to climb 21% to $4.98 per share, also slightly edging forecasts.
PayPal had previously forecast full-year GAAP earnings of $3.49 and non-GAAP of $4.95.
“Overall results show that core PayPal fundamentals remain solid,” Dan Dolev, managing director at Mizuho Securities, wrote Wednesday. Dolev has been bullish on shares, rating the stock a Buy with a $92 price target. In the recent quarter, he was encouraged to see growth in branded checkout accelerated from the second quarter and overall payments volume increased.
On a call with analysts Wednesday, Chriss gave a sense of what Wall Street can expect from him in future quarters. “High-quality customer growth and profitable revenue growth” are two of the principles he will be focused on. He added that he expects future quarterly reporting metrics to be more consistent, thereby allowing investors to understand the company better.
“It is clear to me that the things we need to do better aren’t all going to be achieved overnight. And of course, business, like life, is not a straight line. However, I can tell you one thing for sure. We are going to move at lightning speed to get there as quickly as possible,” Chriss said.
This has been a crucial quarter for PayPal in light of recent challenges. Once a darling of the payments space, PayPal has seen its fortunes change drastically over the last two years, with shares losing more than three quarters of their value over that time.
Some of PayPal’s woes are due to broader market and macroeconomic factors—higher interest rates have made many growth-oriented stocks less attractive. But then there are problems unique to the payments industry: It has become a crowded space with
Apple
(AAPL), Block (SQ), and others chipping away at PayPal’s business.
In recent quarters, PayPal has had to contend with weakening margins. Its unbranded payment-processing business, Braintree, has been growing steadily, but is a lower margin business. Meanwhile growth in the company’s so-called branded business—familiar to most people as the PayPal checkout button—has been weaker.
Meanwhile, PayPal has emerged as somewhat of a battleground stock. Shares trade at 9.4 times forward earnings—a valuation that is well-below its five-year average of 31.6 times and is more like that of a traditional bank stock than a fintech. For some on Wall Street, the stock looks undervalued, but other analysts say PayPal’s growth days are in the rearview mirror.
Some investors “are of the view that, despite attractive valuation, it’s hard to see a path to improving fundamentals without substantially greater investment over a longer period, which could result in meaningful downward EPS estimate revisions that makes valuation less attractive,” James Faucette, analyst at Morgan Stanley, wrote Monday.
Faucette is among the bulls, rating shares Overweight with a $126 price target, more than double where PayPal stock has traded recently. While Faucette is well aware of the margin challenges, he asserts that PayPal can maintain its leading position in e-commerce—even though it may not be an easy feat.
“We acknowledge there is likely a challenging path ahead and that it may take several quarters to get past the factors contributing to uncertainty around the name,” Faucette wrote.
Investors Wednesday seem slightly more confident PayPal is getting back on track.
Write to Carleton English at carleton.english@dowjones.com
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