PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It operates a two-sided network at scale that connects merchants and consumers that enables its customers to connect, transact, and send and receive payments through online and in person.
PayPal Inc. delivered a solid third-quarter performance with adjusted earnings per share (EPS) beating analyst expectations by 12%, supported by a 194-basis-point expansion in its operating margin. This strong result led to a guidance upgrade, forecasting high-teens EPS growth for 2024, reflecting progress in the company’s strategic transformation. However, shares fell -8% as investors were seemingly expecting a stronger forecast for Q4.
PayPal’s total payment volume reached $422.6 billion, a 9% year-on-year increase, and slightly above analyst predictions, indicating sustained traction in its core payment services. CEO Alex Chriss has made it clear that PayPal’s focus is on expanding operating margins without compromising on revenue. This focus has involved the introduction of strategic pricing initiatives within its Braintree unit, which supports mid-single-digit growth and over 100 basis points of transaction margin expansion. The company’s active customer accounts rose to 432 million, showcasing its dual strength in peer-to-peer payments and e-commerce channels. PayPal’s ability to scale through diverse products like buy now, pay later, and crypto integrations, alongside unbranded checkout solutions, provides it with a critical competitive edge, thanks to its expansive two-sided network of 391 million customers and 35 million merchants.
In its latest quarter, PayPal’s transaction margin dollars rose by 8%, bolstered by interest on customer balances, technology-driven improvements in risk management, and strong performances from branded checkout, Venmo, and Braintree. However, unbranded transaction volume, which grew 11% FX-neutral (down from 19% in Q2), indicates some moderation, though branded transactions held steady at 6% growth. The company’s “price-to-value” strategy aims to prioritise profitable growth, with CFO Jamie Miller emphasising that they are focusing on value-added services to maintain higher margins, even if it slows revenue growth slightly in the short term.
Although PayPal shares dipped 8% following a fourth-quarter revenue forecast below analyst expectations, the company remains financially strong. With $1.8 billion in share buybacks funded by $1.4 billion in free cash flow, PayPal shows commitment to delivering value to shareholders. Additionally, it has upgraded its guidance for transaction margin growth and expects cost discipline to drive further improvements in 2025, despite headwinds from declining interest income. PayPal’s current transformation, led by Chriss, is focused on long-term growth, underpinned by disciplined financial management and enhanced product offerings that support profitability while maintaining its global lead in digital payments.
As a reminder, PYPL’s inclusion in the US Growth portfolio is based on fundamentals including valuation and profitability. PYPL’s continued inclusion in the portfolio will next be assessed as part of the November 1st 2024 rebalance.
