PayPal’s conservative earnings forecast reflects their expectations of tighter consumer wallets!
Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Reuters in an article—by Mehnaz Yasmin, “PayPal’s ‘prudent’ revenue growth forecast cut sinks shares”—regarding PayPal’s reduced revenue growth forecast in anticipation of an economic downturn.
PayPal has a tradition of setting low earnings expectations and then outperforming.
Since going public in 2015, PayPal has only twice had negative earnings surprises, in the first quarter of 2020 following the onset of the pandemic and in the last quarter of 2021. Nonetheless, the stock is down a whopping 75% from its July 2021 highs. Topline global revenue growth has maintained upward trends, but bottom line earnings growth stumbled earlier this year. With 3rd quarter numbers out, PayPal saw operating trends improve as earnings trounced estimates (as usual), but revenues and number of new accounts disappointed.
E-commerce revenue and payment volumes improved, but we need to dissect how much of that is real versus how much of that is driven by inflation. PayPal’s payment volume rose to $337 billion from $310 billion a year prior, but that $27 billion increase does not even keep up with a back of the envelope global inflation rate of at least 10%—a significant 45% of their business is outside the U.S.
A rise in average revenue per user shows that PayPal has progressed on its priority to drive wallet adoption and engagement. This late into 2022, the real focus will be on PayPal’s 2023 targets for operating expense optimizations as well as global revenue growth. On that score, their agreement with Apple Inc. to accept each other’s payment products in their wallets could be a huge step forward.
If global macro conditions are better than anticipated, PayPal could outperform their projections.
Quoted article excerpt is below:
“Their cost saving plans are taking hold but in the ultra-competitive payments world, market share gains don’t seem to be enough to placate investors,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors.
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-22-65
