On Tuesday, Jefferies maintained its Hold rating and $80.00 price target on shares of PayPal (NASDAQ:PYPL). The firm's analysis indicated adjustments to the company's revenue projections and potential transaction or credit losses.
According to Jefferies, PayPal's float income is expected to decrease significantly, from being a roughly 300 basis points (bps) tailwind to total payment volume (TPV) growth in the third quarter to about 70 bps in the fourth quarter. Looking ahead, the firm anticipates this will turn into a 110 bps headwind to TPV growth in the fiscal year 2025, marking a substantial swing from the fiscal year 2024.
The firm also forecasts that normalizing transaction losses could present approximately a 100 bps headwind in the fiscal year 2025. However, this negative impact might be balanced out by an increase in credit-related revenue. This potential rise is expected as merchant loan originations begin to increase once again.
Jefferies' outlook for PayPal incorporates broader economic factors, including the influence of interest rate changes on the company's financials. The analyst's comments reflect expectations of additional rate cuts, which are likely to affect PayPal's float income—a key source of revenue for the company.
In other recent news, PayPal Holdings Inc (NASDAQ:PYPL). has demonstrated strong performance in its third-quarter earnings call, showing significant growth. The company's revenue increased by 6% to $7.8 billion, while non-GAAP earnings per share rose by 22% to $1.20. Total (EPA:TTEF) payment volume also saw a substantial increase, growing by 9% to reach $423 billion. These positive results led PayPal to raise its full-year guidance for transaction margin dollars and non-GAAP EPS, indicating confidence in its strategic direction and product innovations.
Phillip Securities recently adjusted its stance on PayPal, moving from a Buy to an Accumulate rating, while increasing the price target to $90 from the previous $80. The firm also revised its financial forecasts for PayPal, increasing the adjusted profit after tax and minority interest (PATMI) by 5%, while slightly reducing the FY24e revenue estimate by 1% due to a deceleration in growth from Braintree, a PayPal platform.
PayPal's recent developments reflect the company's commitment to sustainable, profitable growth through innovation and strategic partnerships. The company's transition to a comprehensive commerce platform, partnerships with firms like Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP), and the launch of PayPal Complete Payments in China and Hong Kong are key steps in this direction. However, ongoing Braintree negotiations may impact revenue growth, and operational expenses are projected to rise in Q4 due to reinvestments and deferred marketing costs.
InvestingPro Insights
To complement Jefferies' analysis, recent data from InvestingPro offers additional context on PayPal's financial position. The company's market capitalization stands at $84.88 billion, reflecting its significant presence in the financial services sector. PayPal's P/E ratio of 20.09 and adjusted P/E ratio of 18.78 for the last twelve months as of Q3 2024 suggest a relatively moderate valuation compared to its earnings.
InvestingPro Tips highlight that PayPal is trading at a low P/E ratio relative to its near-term earnings growth, which aligns with the company's PEG ratio of 0.76. This could indicate potential undervaluation, especially considering the company's recent strong performance, with a 21.95% price return over the last three months and a 31.31% return over the past six months.
Notably, 19 analysts have revised their earnings upwards for the upcoming period, which may reflect positive sentiment despite the challenges outlined in Jefferies' report. The company's revenue growth of 8.0% in the last twelve months as of Q3 2024 and an operating income margin of 17.67% demonstrate PayPal's ability to maintain growth and profitability.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for PayPal, providing a deeper understanding of the company's financial health and market position.
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