A month has gone by since the last earnings report for Paypal (
PYPL Quick Quote PYPL - Free Report) . Shares have lost about 1.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paypal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
PayPal's Q1 Earnings Beat Estimates
PayPal Holdings reported non-GAAP earnings of $1.17 per share for first-quarter 2023, beating the Zacks Consensus Estimate by 6.4%. The figure improved 33% on a year-over-year basis.
Net revenues of $7.04 billion exhibited year-over-year growth of 10% on an FX-neutral basis and 9% on a reported basis. The figure surpassed the Zacks Consensus Estimate of $6.99 billion. Growing transaction and other value-added services’ revenues drove the top line year over year in the reported quarter. Also, accelerating U.S. and international revenues contributed well. Top Line in Detail By Type: Transaction revenues amounted to $6.4 billion (90% of net revenues), up 6% from the year-ago quarter’s level. Other value-added services generated revenues of $676 million (accounting for 10% of net revenues), up 39% year over year. By Geography: Revenues from the United States totaled $4.15 billion (59% of net revenues), up 13% on a year-over-year basis. International revenues were $2.9 billion (41% of net revenues), up 3% from the prior-year quarter’s level. Key Metrics to Consider
PayPal witnessed year-over-year growth of 1% in total active accounts, which came at 433 million in the quarter under review.
The total number of payment transactions was 5.84 billion, up 13% on a year-over-year basis. PYPL’s payment transactions per active account were 53.1 million, which improved 13% from the year-ago quarter’s level. Total payment volume (TPV) amounted to $354.5 billion for the reported quarter, reflecting year-over-year growth of 10% on a spot rate basis and 12% on a currency-neutral basis. Operating Details
PayPal’s operating expenses were $6.04 billion in the first quarter, up 4.7% from the prior-year quarter’s figure. As a percentage of net revenues, the figure contracted 323 basis points (bps) on a year-over-year basis.
The non-GAAP operating margin was 22.7%, expanding 201 bps from the year-ago quarter’s level. Balance Sheet & Cash Flow
As of Mar 31, 2023, cash equivalents and investments were $10.7 billion, down from $10.9 billion as of Dec 31, 2022.
PayPal had a long-term debt balance of $10.5 billion at the end of the first quarter compared with $10.4 billion at the end of the fourth quarter. PYPL generated $1.2 billion in cash from operations, down from $1.6 billion in the previous quarter. Free cash flow was $1 billion in the reported quarter, down from $1.4 billion in the prior quarter. PayPal returned $1.4 billion to its shareholders by repurchasing 19 million shares. Guidance
For second-quarter 2023, PayPal projects year over year revenue growth of 6.5 on a spot rate basis and 7.5 on a currency-neutral basis.
Non-GAAP earnings are expected to be $1.15-$1.17 per share, suggesting growth of 24-26% on a year-over-year basis. For 2023, PayPal raised its guidance for non-GAAP earnings from $4.87 per share to $4.95, suggesting growth of 20% from the year-ago quarter. How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
At this time, Paypal has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Paypal belongs to the Zacks Internet - Software industry. Another stock from the same industry, Fortinet (
FTNT Quick Quote FTNT - Free Report) , has gained 4.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Fortinet reported revenues of $1.26 billion in the last reported quarter, representing a year-over-year change of +32.2%. EPS of $0.34 for the same period compares with $0.19 a year ago.
For the current quarter, Fortinet is expected to post earnings of $0.34 per share, indicating a change of +41.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.9% over the last 30 days.
Fortinet has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.