Important takeaways from PayPal’s (PYPL) Q3 2024 earnings report

PayPal’s (NASDAQ: PYPL) stock dropped Tuesday morning after the financial technology company issued cautious guidance and reported mixed third-quarter results, with earnings beating and revenues missing estimates. Of late, PYPL has been slowly regaining strength, recovering from a crippling losing streak a couple of years ago.

The value has more than halved since early 2022. However, the stock’s recent performance shows it is back on the growth path, gaining an impressive 30% since the beginning of the year. It has often outperformed the S&P 500 in recent months. Assuming the current momentum continues, the low valuation has created an entry point for those who believe in the company’s long-term prospects.

Mixed Outcome

Third-quarter revenues increased to $7.85 billion from $7.42 billion in the corresponding period of 2023. During the quarter, total payment volume increased 9% year-over-year to $422.6 billion. For the fourth quarter, the company expects revenues to grow in low-single-digits.

Adjusted earnings were $1.20 per share in the September quarter, compared to $0.98 per share in the year-ago quarter. On a reported basis, net profit was $1.01 billion or $0.99 per share in Q3, vs. $1.02 billion or $0.93 per share last year. Earnings topped expectations for the tenth consecutive quarter while the top line missed, reversing the recent trend.  

Guidance

The PayPal leadership expects adjusted earnings per share to decrease in low-to-mid-single digits in the fourth quarter. The management said the soft top-line guidance reflects the impact of its price-to-value strategy and prioritization of profitable growth. For the full-fiscal year, the company forecasts a high-teens earnings growth, on an adjusted basis.

“We’re starting to shift perceptions of PayPal and beginning to drive adoption of our suite of complementary products, which all drive back to branded checkout. The broader awareness and perception shift we’re aiming for is not going to happen overnight. This is an area where we plan to continue to invest over time. That said, we’re seeing early signs that give us confidence our strategy is working.  Since we launched PayPal Everywhere, we’ve added more than 1 million first-time debit card users,” PayPal’s CEO Alex Chriss said at the Q3 earnings call.

Revival

Alex took the helm more than a year ago, at a time when the business was going through a rough patch, hurt by a lower revenue per transaction and declining demand amid intense competition. The recent upswing in the stock’s performance primarily reflects the effectiveness of his revival strategy focused on reducing costs and increasing margins while offering merchants value-added services.

Shares of PayPal traded down 4% on Tuesday afternoon, hovering near the $80 mark. For quite some time, the stock has been languishing sharply below its 2021 peak.