Is PayPal about to revise its forecasts downwards?
PayPal Holdings Inc. has lowered expectations all year. Is the business already over?
Bernstein analyst Harshita Rawat wonders if another cut to PayPal’s revenue forecast is on the way when the company reports earnings on Tuesday afternoon. She noted that PayPal executives recently called for revenue growth of 15% to 17% excluding impacts from eBay Inc. EBAY,
which is in the process of migrating to its own payment management system. This latest forecast is lower than the 19% to 21% that the management team predicted at the start of the year.
But even the new forecast “looks rather rosy amid deteriorating e-commerce trends, macro uncertainty, lingering inflation and a strengthening dollar,” Rawat wrote. “We think it is likely that we will see another reduction in forecasts.”
How PayPal stock would react to such a move “is another matter,” she wrote. “We’re inclined to believe that a drop in guidance could be treated softly by investors and an intact beat in guidance/numbers could be handsomely rewarded (in the stock).”
Shares of PayPal traded up more than 11% following the company’s latest earnings report, which led to lower guidance and the end of the medium-term outlook. And the stock is coming off its best month since May 2020, despite some pessimistic signals about the strength of e-commerce growth. To help matters, activists from Elliott Management reportedly took a stake in the company.
See also: Shopify stock plummets amid layoff plan as CEO admits ‘I was wrong’
Jefferies analyst Trevor Williams was more optimistic than Rawat about the prospect that PayPal could maintain its earlier revenue forecast, although he was less than enthusiastic. In his view, PayPal’s latest outlook “has enough cushion for progressively weaker trends,” reducing the chances of another reset.
An “online print and preservation of the low end of the advice is probably sufficient, but don’t expect a surge of enthusiasm,” Williams wrote.
Barclays analyst Ramsey El-Assal called PayPal’s recent policy changes “pragmatic” given economic pressures, although he said he believed “the buy side is not entirely confident – given the difficult macro environment – that PYPL will not need to recalibrate the numbers again.”
Investors have been “widely on the sidelines” when it comes to PayPal, and El-Assal believes “the street will become more constructive once the company consistently hits multi-quarter short-term goals.”
What to expect
Revenue: Analysts tracked by FactSet expect PayPal to post revenue of $6.78 billion, up from $6.24 billion a year earlier. According to Estimize, which relies on projections from hedge funds, academics and others, the average estimate is $6.8 billion.
Earnings: The FactSet consensus models a drop in adjusted earnings per share to 87 cents from $1.15. Respondents to Estimize are looking for an average of 88 cents per share.
Movement of stock: PayPal shares fell after three of the company’s last four earnings reports. They also made double-digit moves after the last three reports.
The stock has had a rough year, falling 54.1% so far in 2022, compared to a 13.3% decline for the S&P 500 SPX,
over the same duration.
Analysts remain largely bullish on the name. Of the 50 analysts tracked by FactSet who cover PayPal, 35 have buy ratings, 14 have hold ratings and one has a sell rating. The average price target is $109.38.
What else to watch out for
RBC Capital Markets analyst Daniel Perlin sees a variety of put-and-take options in Tuesday’s report.
“On the [positive] On the ledger side, we think higher interest rates could improve its floating portfolio, strength in travel bookings remains healthy and focus on engagement could offer evidence this quarter, he said. he writes. “On the other hand, the [negatives] include more FX [foreign-exchange] headwinds, inflationary pressures,” as well as potential discretionary spending issues for low-income customers and a less robust trajectory for the near-term e-commerce category.
Read: PayPal is ‘one of the most recession-sensitive names’ in payments, says downgraded analyst
PayPal surprised Wall Street earlier this year when executives said they would place less emphasis on growing new net asset accounts, which had been a key metric for the company. While PayPal would still seek to create new accounts, executives would focus more on stimulating additional activity among higher-value users rather than motivating less engaged users to stay on board.
Although Barclays’ El-Assal said PayPal’s user growth is not strongly correlated with growth in its payment volumes, he nevertheless believes that “investors should be prepared for account growth in the second quarter. mid-digit versus around 9% in 1Q22 and midteen growth through FY21.”
Another factor to watch will be the performance of PayPal’s buy-it-now and pay-later offers.
Don’t Miss: PayPal Expands BNPL’s Offerings with Monthly Payment Option
“PayPal’s Pay in 4 has seen limited growth among the merchant payment pages we track, and when we looked at players, we found that 28% of Pay in 4 merchants also accept another BNPL provider,” wrote Morgan Stanley’s James Faucette. “We think it probably makes sense for PYPL to work on integrating other BNPL options (Affirm AFRM,
Klarna, etc.) in its branded payment option. »