PayPal Holdings Inc. (NASDAQ: PYPL) experienced a significant surge in its share price following the release of its latest earnings report. The company's stock rose as much as 10%, marking the largest intraday jump since November 2022.
This rally was primarily driven by PayPal’s improved profit forecast for 2024, alongside better-than-expected second-quarter results. The positive market reaction also buoyed shares of its peers, including Block (+0.4%) and Marqeta (+2.3%) in US trading, and Adyen (+5.8%) in Amsterdam.
PayPal’s revised forecast now anticipates adjusted earnings per share (EPS) growth in the low to mid-teens, up from the previous mid- to high-single-digit growth projection. This optimistic outlook reflects the company’s focus on driving efficiency and enhancing profitability under the leadership of CEO Alex Chriss.
In the second quarter, PayPal reported a total payment volume (TPV) of $416.81 billion, an 11% year-over-year increase, though slightly below the consensus estimate of $417.27 billion. Net revenue came in at $7.89 billion, surpassing expectations of $7.82 billion, driven by robust transaction revenue of $7.15 billion. The company’s transaction margin dollars grew by 7.8% year-over-year to $3.61 billion, bolstered by higher interest on customer balances and improved branded checkout performance.
Analysts have weighed in positively on PayPal’s results. BMO Capital Markets’ Rufus Hone highlighted that PayPal is tracking ahead of its 2024 guide, but expressed concerns about the medium-term acceleration of transaction margin dollar growth. Jefferies’ Trevor Williams was surprised by the magnitude of the gross profit beat, attributing it to a higher take rate and lower transaction expenses.
The company’s adjusted EPS for the quarter was $1.19, significantly above the $1.00 estimate. Additionally, PayPal generated $1.37 billion in free cash flow, further reinforcing its financial strength. The company also announced an increase in its share buyback plan to $6 billion, up from the previously planned $5 billion.
Looking ahead, PayPal’s strategic focus remains on sustaining transaction margin dollar growth, particularly through its branded checkout, Braintree, and Venmo segments. Despite facing competition and potential headwinds in international TPV growth, the company is well-positioned to leverage its extensive customer base and diversified product offerings for continued growth.
Overall, this is a positive update for PYPL, which sits within the value component of the US Growth portfolio. Selection for value stocks is based on fundamentals such as profitability and valuation, and the most recent results are likely to see PYPL remain in the portfolio for some time.
