PayPal (PYPL) Third Quarter Earnings Beat Estimates, Revenue Increases Year-over-Year – November 4, 2022

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PayPal Holdings, Inc. (PYPL Free Report) reported non-GAAP earnings of $1.08 per share for the third quarter of 2022, beating Zacks’ consensus estimate by 13.7%. However, the figure has decreased by 2% on an annual basis.

Net revenue of $6.85 billion showed year-over-year growth of 12% on a currency-neutral basis and 11% on a reported basis. The figure topped Zacks’ consensus estimate of $6.82 billion.

Revenue growth from transactions and other value-added services drove year-over-year revenue in the current quarter. In addition, the acceleration of US and international revenues contributed well.

PayPal shares fell 9.7% in after-hours trading due to a weak 2022 revenue outlook. PYPL cut its revenue growth forecast in anticipation of an economic slowdown, which could slow consumer spending.

Year-to-date, PayPal has lost 59.4% compared to the industry’s 61.9% decline.

Top Line in detail

By type: Transaction revenue was $6.23 billion (91% of net revenue), up 11% from the year-ago quarter level. Other value-added services generated revenues of $612 million (representing 9% of net revenues), up 6% year-over-year.

By geography: Revenue from the United States totaled $3.98 billion (58% of net revenue), up 14% year-over-year. International revenue was $2.9 billion (42% of net revenue), up 6% from the prior year quarter level.

Key parameters to consider

PayPal saw 4% year-over-year growth in total active accounts, with 2.9 million new net active accounts added during the quarter. The total number of active accounts was 432 million during the quarter under review.

The total number of payment transactions was 5.64 billion, up 15% year-on-year.

PYPL’s payment transactions per active account were 50.1 million, representing a 13% improvement over the level of the prior year quarter.

Total Payments Volume (TPV) was $336.97 billion for the quarter under review, reflecting year-over-year growth of 9% on a spot rate basis and 14% on a a currency-neutral basis.

The year-over-year growth in POS was primarily driven by Venmo, which accounted for $63.6 billion in POS, up 6% year-on-year.

Operation details

PayPal’s operating expenses were $5.7 billion in the third quarter, up 11.5% from the year-ago quarter figure. As a percentage of net revenue, the figure was up 60 basis points (bps) year over year.

Non-GAAP operating margin was 22.4%, down 140 basis points from the year-ago quarter level.

Balance sheet and cash flow

As of September 30, 2022, cash equivalents and investments were $10.8 billion, compared to $9.3 billion as of June 30, 2022.

PayPal had a long-term debt balance of $10.24 billion at the end of the third quarter, compared to $10.19 billion at the end of the second quarter.

PYPL generated $1.9 billion in operating cash, compared to $1.5 billion in the prior quarter.

Free cash flow was $1.8 billion in the current quarter, compared to $1.3 billion in the prior quarter.

PayPal returned $939 million to shareholders by buying back 10 million shares.

Tips

For the fourth quarter of 2022, PayPal forecasts revenue of $7.375 billion, suggesting growth of 7% on a current spot rate basis compared to the reported figure for the prior year quarter and 9% on a neutral basis. in currencies. Zacks’ consensus estimate for revenue is pegged at $7.74 billion.

Non-GAAP earnings are expected to be $1.18 to $1.20 per share. The Zacks consensus estimate for earnings is pegged at $1.18 per share.

For 2022, PayPal now forecasts revenue of $27.5 billion, indicating growth of 8.5% on a spot rate and 10% on a currency-neutral basis. Zacks’ consensus estimate for 2022 revenue is set at $27.85 billion. Previously, management expected revenue of $27.85 billion, implying growth of 10% on a spot rate and 11% on a currency-neutral basis.

Management raised the non-GAAP earnings forecast from $3.87 to $3.97 per share to $4.07 to $4.09. Zacks consensus estimate for the same is pegged at $3.93 per share.

TPV for 2022 is expected to grow 8.5% on a spot rate basis and 12.5% ​​on a currency neutral basis.

Zacks Ranking and Stocks to Consider

Currently, PayPal carries a Zacks rank of #3 (Hold).

Investors interested in the broader Zacks Computer & Technology sector may consider some higher-ranked stocks like American foods (USFD free report), The trading post (TTD free report) and Tencent Music Entertainment Group (TME Free Report), each carrying a Zacks Rank #2 (Buy) at present. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

US Foods is expected to release its third quarter 2022 results on November 10. The Zacks consensus estimate for USFD earnings is pegged at 59 cents per share, suggesting a 22.9% increase over the reported figure for the prior year period. The USFD has lost 17.4% since the start of the year. Its long-term earnings growth rate is currently projected at 20%.

The Trade Desk is expected to release third quarter 2022 results on November 9. Zacks’ consensus estimate for TTD’s earnings is pegged at 24 cents per share, suggesting a 33.3% increase from the reported figure for the year-ago quarter. TTD has lost 46.3% since the start of the year. TTD’s long-term earnings growth rate is currently projected at 24%.

Tencent Music is expected to report its third quarter 2022 results on November 15. Zacks’ consensus estimate for TME’s earnings is pegged at 11 cents per share, suggesting a 22.2% increase from the reported year-ago quarter figure. TME has lost 44.7% since the start of the year. TME’s long-term earnings growth rate is currently projected at 17.9%.

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