PayPal Beat Expectations, So Why Did the Stock Crash and Burn Thursday Morning?

Shares of PayPal Holdings (NASDAQ: PYPL) slumped out of the gate Thursday, falling as much as 11.4%. As of 11:51 a.m. ET, the stock was still down 11.3%.

The catalyst that sent the fintech company lower was its quarterly financial report. While the results edged past expectations, its guidance sent a shiver through investors.

A stalled turnaround?

For the fourth quarter, PayPal generated net revenue that climbed 9% to $8 billion. This resulted in adjusted earnings per share (EPS) of $1.48, up 19%.

To put this in context, analysts’ consensus estimates had forecast revenue of $7.88 billion and EPS of $1.36, so PayPal exceeded expectations on both counts.

The results were fueled by total payment volume (TPV) of $410 billion, up 15% year over year and 13% in constant currency. Venmo’s growth was moderately slower, with TPV of $67 billion, up 8%.

PayPal’s active accounts continued their tepid growth, up 2% to 426 million. Monthly active accounts increased 1% to 224 million but were down 0.6% sequentially. On the bright side, the number of transactions per active account reached 58.7, rising 14%.

Weak guidance is the key

While many would have been happy with the company’s results, it was PayPal’s subpar guidance that sent some investors packing. For the first quarter, PayPal is expecting net revenue to increase between 6.5% and 7% year over year on a constant currency basis. It expects adjusted EPS to increase by “mid-single digits.”

Full-year guidance was even more worrisome, as management expects its adjusted EPS to be in line with the $5.10 it generated in 2023.

Digging a little deeper reveals the culprit. The fastest-growing part of its TPV is the company’s PSP unbranded card processing services for merchants, which grew 29%. These are lower-margin transactions than when customers pay with PayPal or Venmo, thereby weighing on profits.

PayPal is in the midst of a turnaround, and many investors remain concerned about the ongoing consumer shift to Apple Pay, which ultimately cuts into PayPal’s business. As a longtime shareholder, I am rooting for PayPal to succeed, but I’m…


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