Why is PayPal (PYPL) down 7.7% since its last earnings report?

It’s been about a month since the last earnings report for Paypal (PYPL). Shares have lost about 7.7% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Paypal waiting for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

PayPal’s first quarter earnings beat estimates, revenues increased y/y

PayPal Holdings reported non-GAAP earnings of $1.08 per share for the first quarter of 2024, up 27% year-over-year.

Under the company’s legacy methodology, which excludes the impact of stock-based compensation costs and related employer payroll taxes, adjusted earnings were $1.40 per share, beating the Zacks Consensus Estimate by 16.7%.

Net revenues of $7.7 billion were up 10% year-over-year on a currency neutral basis and 9% on a reported basis. This number surpassed the Zacks Consensus Estimate of $7.5 billion.

Growing transaction revenues contributed to year-over-year revenue growth in the reported quarter. Growing revenues in the US and globally also had a positive impact on growth.

Top line in detail

By type: Transaction revenue was $7.03 billion (91% of net revenue), an increase of 11% compared to the same quarter last year. Other value-added services generated revenues of USD 665 million (representing 9% of net revenues), representing a decline of 2% year-on-year.

By geography: U.S. revenues were $4.5 billion (58% of net revenues), up 8% year-over-year. International revenues were $3.2 billion (42% of net revenues), up 12% from the prior-year quarter.

Key metrics to consider

At PayPal, the number of total active accounts decreased by 1% year-over-year, to 427 million in the quarter under review. This number was in line with the Zacks Consensus Estimate.

The total number of payment transactions was 6.5 billion, up 11% year-on-year. The figure surpassed the consensus estimate of 6.49 billion.

The number of PYPL payment transactions per active account was 60 million, an increase of 13% compared to the same quarter last year.

Total payment volume for the reported quarter was $403.9 billion, up 14% year over year on a spot and currency neutral basis. The reported number beats the Zacks Consensus Estimate of $394.05 billion.

Operational details

PayPal’s operating expenses were $6.53 billion in the first quarter, up 8.1% from the prior-year quarter. As a percentage of net revenues, this number decreased by 100 basis points (bps) year-over-year.

Non-GAAP operating margin was 15.2%, an increase of 100 basis points from the prior-year quarter.

Balance sheet and cash flow

As of March 31, 2024, cash equivalents and investments were $14.3 billion, compared to $14.1 billion as of December 31, 2023.

PayPal’s long-term debt balance as of March 31, 2024 was $9.68 billion, compared to $9.67 billion as of December 31, 2023.

During the reported quarter, PYPL generated $1.9 billion in cash from operations compared to $2.6 billion in the prior-year quarter. Free cash flow was $1.8 billion in the first quarter, up from $2.5 billion in the previous quarter.

The company returned $1.5 billion to its shareholders by repurchasing 25 million shares.

Conductivity

In Q2 2024, PayPal expects revenue to grow 6.5% on a spot rate and 7% on a neutral rate compared to the prior-year quarter.

Non-GAAP earnings per share are expected to grow at a double-digit rate year over year.

PayPal expects non-GAAP earnings per share growth in the mid- to high-single digits in 2024.

How have estimates changed since then?

Over the last month, investors have seen a downward trend in estimate revisions.

VGM results

Currently, Paypal has a great Growth Score of A, although it lags in the Momentum Score with a C. Plotting a somewhat similar path, the stock was given a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Paypal carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Paypal is part of the Zacks Internet – Software industry. Over the past month, F5 Networks (FFIV) in the same industry has gained 1%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, F5 reported revenue of $681.35 million, representing a year-over-year change of -3.1%. EPS of $2.91 in the same period compared to $2.53 a year ago.

For the current quarter, F5 is expected to report earnings per share of $2.99, which would represent a year-over-year change of -6.9%. Over the past 30 days, the Zacks Consensus Estimate has moved -1.9%.

F5 carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of C.

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