PayPal Holdings delivered impressive first quarter results thanks to a rebound in e-commerce growth compared to the previous quarter's low levels.
The fintech company surpassed expectations across various operating and volume metrics, according to analysts.
The payments giant's revenue was $7.04 billion, up about 10% year-over-year and above Street expectations of $6.96 billion. Earnings were $1.17 per share, up 33% from a year earlier and topping expectations of $1.10.
Payments volume rose 12% on a forex-neutral basis to $354.5 billion in the quarter ended March 31.
Analysts at Wedbush were pleased with PayPal’s transaction growth in the high-margin branded checkout segment, which accelerated by 2% quarter-over-quarter.
As noted by Wedbush, PayPal is maintaining a conservative stance due to global macro challenges, guiding for a slight moderation in revenue growth for the coming quarter.
Key highlights from the report include a 4% year-over-year increase in transaction per user, stronger transaction growth and higher transaction value from new cohorts, stabilization and potential expansion of branded checkout share, and a slight decline in transaction margins due to the outperformance of unbranded checkout.
“Given these developments, we reiterate an Outperform rating on PayPal and set a new price target of $85, reflecting a 14.6x price-to-earnings multiple based on current year 2024 earnings per share,” analysts at Wedbush wrote.
Better margins
Meanwhile, Canaccord analysts called PayPal’s better margins on unbranded volume over the medium term “a plus.”
“PayPal's strategy to remain mostly focused on core e-commerce payment volume worked well in 1Q, with demand remaining strong for branded solutions, especially in the SMB channel as well as the company flexing its position in the unbranded segment,” Canaccord analysts wrote.
“Paypal's value proposition continues to shine best relative to checkout and clickthrough performance in closing online transactions.”
The brokerage also noted PayPal’s overall EPS setup for 2023, saying it “looks good.”
“(We) see PayPal acting more nimbly and thoughtfully than it did exiting the pandemic. While the company benefitted tremendously from the e-commerce boom during Covid, the company has now pivoted back to what is a more sobering and maturing e-commerce payments market; being more thoughtful and strategic with investment spend,” Canaccord wrote.
“Over time, this strategy should pay off with better sustainable double-digit top-line growth, combined with stabilization in transaction margin and ongoing operating leverage.”
Canaccord is maintaining its Buy rating and US$160 price target on the stock.
Contact Angela at angela@proactiveinvestors.com
Follow her on Twitter @AHarmantas