Although PayPal's profits and sales exceeded analysts' expectations, the company's full-year forecast for 2024 was significantly lower than Wall Street's expectations.
After Wednesday's close, PayPal Holdings reported fourth-quarter earnings per share of $1.29 based on generally accepted accounting principles. That compares to fourth-quarter 2022 earnings of $0.81, compared to the $1.18 expected by analysts tracked by FactSet. The gain included a 25 cent gain from the sale of the Happy Returns business to UPS.
The company also reported fourth-quarter net revenue of $8 billion, compared to analyst estimates of $7.88 billion.
The results came a week after the payments company announced it would lay off 9% of its workforce as part of new CEO Alex Criss' turnaround plan.
Chris said in a statement that the company is “committed to making the necessary changes to our business to drive profitable growth in the coming years,” and sees 2024 as “a long-term plan for PayPal.” A year focused on execution to lead to success.”
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The financial results report wasn't all good news. PayPal said it expects GAAP earnings to be approximately $3.60 in 2024, compared to $3.84 in 2023, which includes gains from the Happy Return sale. Non-GAAP earnings, which include adjustments for restructuring charges and stock-based compensation, are expected to be flat at $5.10.
Both numbers are lower than analysts expected for this year's GAAP earnings per share of $4.03 and non-GAAP earnings of $5.51.
Investors are looking for evidence that the company can prevent its core checkout business from being cannibalized by competitors.
PayPal offers peer-to-peer money transfers and online checkout services through apps like Venmo. The company says PayPal processes about a quarter of all e-commerce transactions, but in recent years PayPal has been losing market share to other platforms such as Apple Pay.
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The company announced in late January that it would lay off 9% of its workforce this year in an effort to “right-size” the business, according to a memo to employees from Chris, who took over in September 2023.
PayPal shares fell 0.7% to $63.24 on Wednesday before earnings. The company's stock has fallen about 24% over the past year, but is up 3.5% so far in 2024. According to FactSet, about half of analysts rate the stock a “buy,” while the other half rate it “neutral.” The target is $63.01.
The main drag on the stock price lately has been the erosion of market share in PayPal's core “branded” checkout business, which competes with other options such as Apple Pay and Google Pay. PayPal also offers low-margin unbranded checkout, which is growing.
BTIG analysts wrote in a research note last week that PayPal is “currently the most hotly debated stock we cover.” Analysts wrote that they expect the company to have a strong earnings outlook, but a weak sales outlook. “We would be surprised if a growth story emerges that creates more buyers for the stock,” the analysts wrote.
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The company's “innovation” event in January didn't make much of an impression on Wall Street. Executives announced initiatives such as “smart receipts,” which use artificial intelligence to predict what consumers will want next, and a faster checkout process.
However, some regulatory winds appear to be blowing in PayPal's favor. Last month, Apple announced it would open up iPhone tap-to-pay functionality to competitors in the European Union to comply with new EU law. The move could allow companies including PayPal to offer tap-to-pay applications on the iPhone in some markets.
For investors, the stock is cheap by historical standards. The company's price-to-earnings ratio is 11x based on estimated earnings over the next 12 months. This is half the industry average and significantly lower than PayPal's own five-year average of 30.5x earnings.
Email Joe Light at joe.light@barrons.com.
