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PayPal Tumbles After Release of 2nd-Quarter Results

PayPal Holdings Inc. (NASDAQ:PYPL)'s share price tumbled 4.12% at $116.30 in after-hours trading Wednesday although the company beat forecasters by 3 cents on second quarter 2019 non-GAAP earnings. PayPal posted 86 cents per share, up 47% year-over-year.

The California-based international online payments system company also said that GAAP earnings per share increased 58% from the prior-year quarter to 69 cents.

Revenue of about $4.31 billion grew 11.6%, but it fell $5 million short of expectations. The revenue growth suffered 7 percentage points of deterioration due to the sale of the company's portfolio of U.S. consumer receivables to Synchrony in July 2018.

A 4% decline in the eBay Marketplaces volume also negatively affected revenues.

Strong growth of 30% occurred in Merchant Services volume, 40% in Person-to-Person volume to $46 billion and 70% in total payment volume processed by Venmo to $46 billion. These were the key drivers of second quarter revenues.

In addition, GAAP operating margin fell 155 basis points to 16.4%, and non-GAAP operating margin dropped 192 basis points to 23.2%. Net cash flow generated by operations was nearly $1.2 billion, and free cash flow came to $1.04 billion. Payment volume grew 24% to $172.4 billion.

For full 2019, PayPal targeted lower revenues of $17.6 billion to $17.8 billion compared to the previous range of $17.85 billion to $18.1 billion and versus consensus of $17.98 billion. Non-GAAP earnings per share are expected to range between $3.12 and $3.17, up from the previous range of $2.94 to $3.01 and versus consensus' estimates of $3.03.

For the third quarter of 2019, the company guided for revenue of approximately $4.33 billion to $4.38 billion versus consensus of $4.44 billion. PayPal targeted non-GAAP earnings per share of 69 cents to 71 cents versus expectations of 70 cents.

The share price closed at $121.3 on Wednesday for a market capitalization of about $142.52 billion. After a 36% rise for the 12 months through Wednesday, July 24, the share price is above the 200-, 100- and 50-day simple moving average lines.

Wednesday's closing price was 62.5% above the 52-week low of $70.22 and just 0.15% from the 52-week high of $121.48.

As of June 30, PayPal had $8.42 billion in cash and short-term securities but it doesn't pay a dividend.

Disclosure: I have no positions in any securities mentioned.

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This article first appeared on GuruFocus.