PayPal shares tumble despite a solid Q3 and raised guidance

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PayPal Holdings Inc (NASDAQ: PYPL) lost as much as 10% in extended trading on Thursday even though the payments company reported a better-than-expected Q3 and raised its earnings guidance for the full year.

PayPal’s guidance for the full year

The fintech giant now forecasts up to $4.09 of adjusted per-share earnings in 2022 – well above the $3.87 to $3.97 range it had guided for earlier.

That optimism suggests its previously disclosed cost cutting programme is starting to bear fruits.

Its mobile payment service – Venmo noted $63.6 billion in volume this quarter. Last week, PayPal said the eCommerce giant Amazon.com Inc has agreed to enable payments via Venmo. It’s in talks to find a spot on Apple Wallet as well.

So, things have been turning positive for PayPal lately.

Why are PayPal shares down after-hours?

Nonetheless, PayPal shares are down because the management lowered its outlook for revenue citing the challenging macro environment. Rates are expected to go further up in 2023 (source) and the accompanying economic downturn could mean a hit to transaction volumes for PayPal.

Then of course, the rising rate environment tends to weigh on the growth-focused stocks in general as well. PayPal is now calling for a 10% annualised growth in full-year revenue (currency-neutral) versus 11% expected before.

Also on the negative (slightly) was the number of active accounts. PayPal ended the quarter with 432 million active accounts after adding 2.9 million this quarter. Street was at a bit higher 432.9 million.

Notable figures in PayPal’s Q3 earnings report

Per-share earnings increased from 92 cents to $1.15Adjusted EPS was $1.08 as per the earnings press releaseRevenue went up 11% year-on-year to $6.85 billionConsensus was 96 cents a share on $6.81 billion in revenueTotal payment volume (TPV) was $337 billion – up 9.0%Transactions per active account were up 13% to 50.1

Acting CFO Gabrielle Rabinovitch’s remarks

PayPal Holdings Inc also offered a sneak peek into what it expects for 2023. The multinational is aiming for at least a 15% annualised growth in earnings per share and a 100 basis points (at least) gain in operating margin.

That’s following a 140-bps hit to adjusted operating margin in Q3. According to Gabrielle Rabinovitch (Acting CFO and Senior Vice President):

We continue to execute on our strategy to deliver long-term, profitable growth. Our strong third quarter results reflect both the diversification of our business and our ongoing focus on operating discipline.

PayPal shares are now down more than 65% for the year.

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