Paypal (PYPL) Down 2.6% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Paypal (PYPL). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paypal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
PayPal's Q2 Earnings Match Estimates
PayPal Holdings reported non-GAAP earnings of $1.16 per share for second-quarter 2023, which came in line with the Zacks Consensus Estimate. The figure improved 24% on a year-over-year basis.
Net revenues of $7.29 billion exhibited year-over-year growth of 8% on an FX-neutral basis and 7% on a reported basis. The figure surpassed the Zacks Consensus Estimate of $7.26 billion.
Growing transaction and other value-added services’ revenues drove top-line growth year over year in the reported quarter. Also, accelerating U.S. and international revenues contributed well.
Top Line in Detail
By Type: Transaction revenues amounted to $6.6 billion (90% of net revenues), up 5% from the year-ago quarter’s level. Other value-added services generated revenues of $731 million (accounting for 10% of net revenues), up 37% year over year.
By Geography: Revenues from the United States totaled $4.21 billion (58% of net revenues), up 9% on a year-over-year basis. International revenues were $3.1 billion (42% of net revenues), up 5% from the prior-year quarter’s level.
Key Metrics to Consider
PayPal witnessed year-over-year growth of 0.5% in total active accounts, which came at 431 million in the quarter under review. The figure came below the Zacks Consensus Estimate of 435 million.
The total number of payment transactions was 6.07 billion, up 10% on a year-over-year basis. The figure lagged the consensus mark of 6.18 billion.
PYPL’s payment transactions per active account were 54.7 million, which improved 12% from the year-ago quarter’s level. The consensus mark for the same was 55 million.
Total payment volume (TPV) amounted to $376.54 billion for the reported quarter, reflecting year-over-year growth of 11% on a spot rate basis as well as on a currency-neutral basis. The reported figure topped the Zacks Consensus Estimate of $370.02 billion.
Operating Details
PayPal’s operating expenses were $6.15 billion in the second quarter, up 1.9% from the prior-year quarter’s figure. As a percentage of net revenues, the figure contracted 440 basis points (bps) on a year-over-year basis.
The non-GAAP operating margin was 21.4%, expanding 230 bps from the year-ago quarter’s level.
Balance Sheet & Cash Flow
As of Jun 30, 2023, cash equivalents and investments were $9.9 billion, down from $10.7 billion as of Mar 31, 2023.
PayPal had a long-term debt balance of $10.55 billion at the end of the second quarter compared with $10.48 billion at the end of the first quarter.
PYPL used $200 million of cash in operations during the reported quarter compared with $1.2 billion of cash it generated from operations in the previous quarter.
Free cash flow was $350 million in the reported quarter.
PayPal returned $1.5 billion to its shareholders by repurchasing 22 million shares.
Guidance
For third-quarter 2023, PayPal projects revenues at $7.4 billion, indicating year-over-year growth of 8% on a spot rate basis as well as on a currency-neutral basis.
Non-GAAP earnings are expected to be $1.22-$1.24 per share, suggesting growth of 13-14% on a year-over-year basis.
For 2023, PayPal reiterated its guidance for non-GAAP earnings of $4.95, suggesting growth of 20% from the year-ago quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Paypal has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Paypal is part of the Zacks Internet - Software industry. Over the past month, F5 Networks (FFIV), a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended June 2023 more than a month ago.
F5 reported revenues of $702.64 million in the last reported quarter, representing a year-over-year change of +4.2%. EPS of $3.21 for the same period compares with $2.57 a year ago.
F5 is expected to post earnings of $3.22 per share for the current quarter, representing a year-over-year change of +22.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.3%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for F5. Also, the stock has a VGM Score of C.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PayPal Holdings, Inc. (PYPL) : Free Stock Analysis Report
F5, Inc. (FFIV) : Free Stock Analysis Report
