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PayPal ETFs to Dump on Weak Guidance?

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Paypal (PYPL - Free Report) recently reported Q1 results, beating on both earnings and revenues. PayPal stock slumped 5.4% after market on May 8, responding to earnings results. Shares slumped due to transaction margin pressures despite a spike in guidance.

The payments giant cautioned that its adjusted operating margin won’t grow as quickly as the company previously anticipated, even after spending on its platforms surged more than expected in the first quarter, per Bloomberg.

Deutsche Bank analysts said that transaction margins are presently under pressure and can improve year over year only on a rebound in branded volumes (as share loss concerns prevail). Hence, improved revenues are anticipated to be entirely offset by decreased transaction margins, per the analysts, as quoted on investing.com.

Inside the Results

The company came up with quarterly earnings of $1.17 per share, beating the Zacks Consensus Estimate of $1.10 per share helped by cost cuts and growth in e-commerce. This compares to earnings of $0.88 per share a year ago. Over the last four quarters, the company surpassed consensus EPS estimates four times.

Paypal, which belongs to the Zacks Internet - Software industry, posted revenues of $7.04 billion for the quarter ended March 2023, surpassing the Zacks Consensus Estimate by 0.69%. This compares to year-ago revenues of $6.48 billion.

The company has topped consensus revenue estimates three times over the last four quarters. Active accounts grew 1% for the quarter year over year, bringing total active accounts to 433 million. Total payment volume (TPV), a key measure of performance, rose 10%, to $354.5 billion.

PayPal's Pandemic Success

During the pandemic, PayPal amassed a lot of success as consumers shifted to online transactions, resulting in a surge in its revenues. PayPal revenues, for example, shot up from $17.8 billion in 2019 to more than $25 billion in 2021, per CNBC. Shares of the company also saw new heights during that period.

However, as pandemic restrictions began to ease, PayPal's stock growth slowed down, leading to a series of disappointing earnings reports. The company's latest earnings report raised concerns among investors, due to a weak guidance.

Recent Slowdown in Growth

At the height of the pandemic, e-commerce sales accounted for 16.4% of total retail sales in the United States. Since then, the growth has largely slowed down, remaining under 15% the past two years. As the lockdowns ended, people returned to in-person spending. Some even went back to cash transactions, per analysts. Rising competition in the digital-payment space is another key contributing factor to the pain in the stock.

Guidance

For Q2, adjusted EPS was expected to grow 24% to 26% to $1.15 to $1.17 on revenue growth in a range of 6.5% to 7%. The Zacks Consensus Estimate for earnings growth was 26.88% and revenue growth was 6.37%.

The company now expects adjusted EPS for the full year to grow by about 20% to $4.95, up  from the prior guidance of 18% growth to $4.87. The Zacks Consensus Estimate was $4.92.

ETFs in Focus

Against this backdrop, one should keep a close tab on PayPal-heavy ETFs like Grayscale Future of Finance ETF (GFOF - Free Report) , Global X FinTech ETF (FINX - Free Report) and ETFMG Prime Mobile Payments ETFMG Prime Mobile Payments Fund (IPAY - Free Report) .

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