On Tuesday, Goldman Sachs reaffirmed its Buy rating on PayPal Holdings Inc (NASDAQ:PYPL) with a steady price target of $79.00, following the company's third-quarter results which surpassed expectations. The positive outcome was primarily attributed to a higher transaction margin, a result of both transaction revenues and expenses falling below expectations, with a larger decrease in expenses.
PayPal's third-quarter performance was boosted by an increase in One Touch Active Users (OVAS), contributing to the earnings beat, despite higher operating expenses. The company's guidance for the fourth quarter was slightly conservative, with revenue projections about 2% below the consensus, though at the higher end they were modestly ahead. The EPS guidance also fell slightly short of expectations.
The company's branded checkout function showed a growth of 6%, which was considered better than anticipated, especially given the challenging comparisons from the previous summer months. However, there was a notable sequential slowdown in volumes for the unbranded and Braintree services, which was anticipated but still resulted in a 2% shortfall against the consensus.
The analyst highlighted key areas of focus for investors, including holiday spending forecasts, the sustainability of branded checkout growth, and the anticipated improvements in transaction margins looking towards 2025. Specific attention was drawn to the upcoming earnings call for insights into these areas.
PayPal reported third-quarter revenue of $7.8 billion, aligning with ValueAct consensus. Transaction revenue was slightly below consensus at approximately $7.07 billion, while OVAS revenue exceeded expectations by 4% at $780 million. The transaction margin outperformed consensus by 4% at around $3.7 billion.
Non-GAAP Operating Income was reported at $1.5 billion, with GAAP figures at $1.4 billion. Operating expenses tallied approximately $2.2 billion, excluding transaction expenses. Adjusted net income reached $1.23 billion, resulting in an Adjusted EPS of $1.20, which was about 12% higher than consensus estimates.
In other recent news, PayPal Holdings Inc. has reported an 11% increase in total payment volume and a 9% rise in revenue on a currency-neutral basis, according to recent earnings. Non-GAAP earnings per share also saw a substantial 36% year-over-year increase. However, due to uncertain economic conditions, PayPal is expected to reduce its global workforce by 9%, equating to approximately 2,500 jobs.
Analyst firms Mizuho and Deutsche Bank have upgraded the stock, citing the company's potential for continued growth, while Goldman Sachs, Jefferies, and BMO Capital have maintained their neutral positions. PayPal has also expanded its cryptocurrency services to U.S. business accounts, allowing them to buy, hold, and sell various cryptocurrencies. In terms of strategic partnerships, PayPal has integrated with Amazon (NASDAQ:AMZN)'s 'Buy with Prime' service and collaborated with Adyen (AS:ADYEN) to introduce Fastlane, a feature designed to streamline online transactions.
InvestingPro Insights
PayPal's recent performance and Goldman Sachs' reaffirmed Buy rating align with several key metrics and insights from InvestingPro. The company's market capitalization stands at $85.46 billion, reflecting its significant position in the financial services industry. PayPal's P/E ratio of 20.08 and adjusted P/E ratio of 19.49 for the last twelve months as of Q2 2024 suggest that investors are willing to pay a premium for the company's earnings, which is consistent with its strong market position and growth prospects.
InvestingPro Tips highlight that PayPal is a prominent player in the Financial Services industry and has been profitable over the last twelve months. This aligns with the company's recent earnings beat and Goldman Sachs' positive outlook. The company's revenue growth of 8.66% over the last twelve months and 8.21% in Q2 2024 supports the analyst's observations about the growth in branded checkout and overall performance.
Additionally, PayPal's strong return over the last three months, with a 41.82% price total return, and its trading near its 52-week high (99.87% of the 52-week high) reflect the market's positive sentiment following the company's better-than-expected results. These metrics provide context to Goldman Sachs' maintained Buy rating and price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for PayPal, providing deeper insights into the company's financial health and market position.
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