By Senad Karaahmetovic
Shares of PayPal (NASDAQ:PYPL) are down about 7% in pre-open Friday trading after the company reported its Q3 earnings.
PayPal reported EPS of $1.08 on revenue of $6.85 billion, beating the consensus that called for EPS of $0.96 on revenue of $6.82 billion. Total payment volume (TPV) increased by nearly 9% to $336.97 billion.
The company also reported it has 432 million active accounts, just below the estimate of 433.2 million. The adjusted operating margin came in at 22%, beating the consensus of 19.8%.
"We delivered strong third-quarter results. We will continue to invest against our key priorities to advance our leading position in digital payments and commerce. We're very pleased to be working with Apple to enhance our offerings for our PayPal and Venmo merchants and consumers," said PayPal President and CEO Dan Schulman.
Still, shares were hit by weaker-than-expected Q4 guidance. PayPal said it expects to post an adjusted EPS ranging from $1.18 to $1.20 on revenue of $7.38 billion. Analysts were expecting a Q4 EPS of $1.18 on sales of $7.73 billion.
The softer-than-expected outlook for the fourth quarter prompted PayPal to cut its full-year revenue guidance. The new forecast calls for revenue of $27.5 billion, down from the prior $27.85 and below the $27.81 billion consensus. On a positive note, the FY EPS forecast is raised to $4.08 (the midpoint) from $3.92 and better than the $3.93 consensus.
Morgan Stanley analysts remain positive on PYPL despite the guidance cut. They believe the company is “executing well under the circumstances it can control.”
“While softer eCommerce trends in Sept/Oct drove a step-down in PYPL's top-line expectations in 4Q and into '23, we are encouraged that PayPal continues to grow share compared to underlying eCommerce and is making the right strategic moves to grow habituation and maintain this outperformance over the longer term,” they said in a client note.
Truist analysts slashed the price target to $75 from $90 and remain Hold-rated due to a balanced risk/reward.
“Our view is that PayPal faces offline monetization challenges, and its announced Apple Pay integrations will blend down yield w/out significantly expanding TAM. We think the co should use depressed market valuations to acquire a card present processor,” they wrote in a note.