- Q4/FY guidance cut on consumer spending worries
- Stock slumps nearly 7% pre-market despite Q3 beats
- Risk/reward balance called into question
PayPal (PYPL:NASDAQ) faces heavy selling when Wall Street reopens later today after weak revenue guidance caught the eye of investors in the company’s third-quarter update.
The stock is staring at a near-7% slump when trading kicks-off, with a $71.50 share price implying close to 2022 lows and meaning losses of more than 11% for the shares this week.
The hit comes following weaker-than-expected Q4 guidance, with PayPal saying it expects to post adjusted EPS (earnings per share) ranging from $1.18 to $1.20 on revenue of $7.38 billion. Analysts were expecting Q4 EPS of $1.18 on sales of $7.73 billion.
Q4 AND FULL YEAR FORECASTS CUT
The softer Q4 outlook also saw the digital payments platform cut its full-year revenue guidance. The new forecast calls for revenue of $27.5 billion, down from the prior $27.85 and below the $27.81 billion consensus.
On a positive note, the full year EPS forecast was raised to $4.08 (the midpoint of the range) from $3.92, and better than the $3.93 consensus.
The update will do little to ease investor concerns around consumer spending in the vital Christmas run-in. Amazon (AMZN:NASDAQ) recently warned of tightening consumer budgets, although online retail platforms Ebay (EBAY:NASDAQ) and Etsy (ETSY:NASDAQ) were more positive on 3 November.
PayPal reported EPS of $1.08 on revenue of $6.85 billion in Q3, beating the consensus of $0.96 on revenue of $6.82 billion. Total payment volume rose nearly 9% to just shy of $337 billion. The company also reported it has 432 million active accounts, just below the estimate of 433.2 million. The adjusted operating margin came in at 22%, beating the consensus of 19.8%.
PayPal executives tried to soothe investors’ jangled nerves but talk of further investment kept the mood muted. ‘We delivered strong third-quarter results,’ said PayPal president and CEO Dan Schulman.
‘We will continue to invest against our key priorities to advance our leading position in digital payments and commerce. We're very pleased to be working with Apple (AAPL:NASDAQ) to enhance our offerings for our PayPal and Venmo merchants and consumers,’ he said.
HOW DID ANALYSTS REACT?
Morgan Stanley analysts saw the positives, saying they believe the company is ‘executing well under the circumstances it can control.’
‘While softer ecommerce trends in September and October drove a step-down in PayPal’s top-line expectations in Q4 and into 2023, we are encouraged that PayPal continues to grow share compared to underlying ecommerce and is making the right strategic moves to grow habituation and maintain this outperformance over the longer term,’ they said in a note to clients.
Analysts at broker Truist were more circumspect, cutting their price target to $75 from $90, with questions over the risk/reward balance.
‘Our view is that PayPal faces offline monetisation challenges, and its announced Apple Pay integrations will blend down yield without significantly expanding TAM [total addressable market]. We think the company should use depressed market valuations to acquire a card present processor,’ they wrote in a note.
