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PayPal Q2 Preview: Can Shares Rebound?

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The Zacks Internet – Software Industry has tumbled year-to-date, decreasing nearly 50% in value vs. the S&P 500’s decline of roughly 12.5%. However, the industry has posted a 3.5% return over the last month, perhaps signaling that the worst is over.

One company residing in the industry, PayPal PYPL, is on deck to release 2022 Q2 earnings after market close on Tuesday, August 2nd.  PayPal is a titan in the digital payments space, providing smooth and secure transactions to both customers and merchants.

In addition, PayPal is a Zacks Rank #4 (Sell) with an overall VGM Score of a C. How does the digital payment giant shape up heading into the print? Let’s take a closer view.

Share Performance & Valuation

Year-to-date, PayPal shares have plunged, losing more than half of their value and coming nowhere near the general market’s performance.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, buyers have come in swarms over the past month, with PYPL shares tacking on an impressive 23% in value and crushing the S&P 500’s performance.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company sports much more reasonable valuation metrics following the sell-off. PayPal’s forward earnings multiple now resides at 33.9X, well below its median of 49.1X over the last five years and a fraction of highs of 87.8X in 2021.

Shares currently trade at an 81% premium relative to the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Quarterly Estimates

Analysts have been overwhelmingly bearish for the quarter to be reported over the last 60 days, with all five estimate revisions being downwards. In addition, the Zacks Consensus EPS Estimate of $0.85 reflects a disheartening 26% drop in quarterly earnings year-over-year.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

However, PayPal’s top-line appears to be in much better shape – the $6.8 billion quarterly revenue estimate pencils in a solid 8.3% uptick from year-ago quarterly sales of $6.2 billion.

Quarterly Performance & Market Reactions

The company has primarily reported bottom-line results above expectations, exceeding the Zacks Consensus EPS Estimate in seven of its last ten quarters. However, in its latest quarter, PayPal reported EPS in line with expectations.

Quarterly sales numbers have also been solid, with PayPal registering seven top-line beats over its last ten reports. Below is a chart illustrating the company’s revenue on a quarterly basis.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In addition, the market hasn’t reacted well to the company’s bottom-line beats as of late – over its last three EPS beats, shares have moved downwards each time following the report, all by at least 5%.

Putting Everything Together

Over the last month, PayPal shares have soared, a reflection of buyers finally coming out to play. In addition, the company’s valuation levels are elevated but are still nowhere near where they have been historically.

Analysts have been bearish for the quarter to be reported, and earnings are expected to take a double-digit percentage hit. However, the top-line is projected to register solid growth.

PayPal has repeatedly reported top and bottom-line results above expectations, but the market has not reacted well following the company’s previous three bottom-line beats.

Heading into the print, PayPal PYPL carries an Earnings ESP Score of -2.5%.


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