PayPal shares took a hit Thursday even as the company’s second quarter results managed to beat expectations.
After the bell Wednesday, Paypal posted earnings of $1.16 per share, up 24% year-over-year, and over expectations of $1.15. Revenue was $7.3 billion, 7% higher than last year and above expectations of $7.27 billion.
However, transaction gross profit, which refers to transaction revenue minus transaction expenses and transaction losses, rose 1% year-over-year. That was perceived as weak, and shares of PayPal tumbled nearly 12% Thursday morning to $64.49.
Not everyone is worried, though. Wedbush analysts reiterated their Outperform rating and $85 price target while acknowledging PayPal’s shortcomings.
“Similar to the prior quarter, [PayPal] experienced transaction margin compression,” analysts wrote. “This time, in addition to unfavorable transaction volumes (faster-growing, low margin non-branded checkout), margins were also impacted by underperforming business loans (less than 15% of net receivables).”
That said, there’s a lot to like, they argued.
“While investors will continue focusing on margin trends until possibly Q4 ... ecommerce growth stabilized in the mid-single digit range, with branded check-out volumes accelerating to 6.5% and 8% during the months of June and July, respectively,” analysts wrote.
“Moderating inflation levels [are] expected to trigger an improvement in discretionary spending ... [and] growth rates [in the second half of 2023] are expected to be in-line to slightly better than [first half] levels,” they added.
Investors may also soon get clarity on the CEO situation. Current CEO Dan Schulman plans to retire at the end of the year, and the company is in the “final stages” of finding his successor, he said during the company’s earnings call.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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