“PayPal delivered strong financial and operating results during a highly productive third quarter. We are making solid progress in our
transformation as we bring new innovations to market, forge important partnerships with leading commerce players, and drive
awareness and engagement through new marketing campaigns.
We are raising our full year non-GAAP guidance and are pleased with the strength we are seeing across the business. We’ve built a
solid foundation in this last year that will serve us in the years to come.”
Alex Chriss
President and CEO
To check out my full PayPal Thesis – Follow this link
Overview
Another very solid quarter in the bag for the team over at PayPal. Lot’s of data on show that just reinforces my thesis for this one.
You can find the full earnings deck release here.
You can find the financial reports here.
Highlights
Net revenues increased 6% to $7.8 billion; 6% currency-neutral (FXN).
Transaction margin dollars increased 8% to $3.7 billion.
GAAP operating income increased 19% to $1.4 billion; non-GAAP1
operating income increased 18% to $1.5 billion.
GAAP operating margin expanded 198 basis points to 17.7%; non-GAAP opera
Updated Vizual Summary Charts
Key Charts
The things I love the most:
• Outstanding shares are getting burned down aggressively. This quarter they have bought back $1.8B, 123% of FCF; $5.4B on a trailing 12-month basis, reducing weighted average shares by 7%.
• Active accounts increased a little more and transactions per active account is holding steady.
• Total payment volume rising steadily still.
• Transaction margins are steadily improving. Still a ways to go but it seems like an inflection point. The ads business set to launch in 2025 will help here as it’s a high margin segment. Gross margins also moving the right way.
• Cash still looks sexy despite buy backs and debt stable.
• Loved the 11.71% beat on EPS, Those buybacks are helping boost that whilst the company pivots and gets back to growth.
• T
• Small lift guidance for the full year in regards to transaction margins and non-GAAP EPS . They have clarified that the low Rev is a strategic move that hurts in the short term, but for better rewards later on.
• Fastlane is going well but still scaling up to more merchants and Vendors etc
Here’s what I like less:
• Take rate and transaction take rate down again but marginally so. I think this will revert back to expansion at some point, just like transaction margins have. Definitely worth keeping an eye on though. Unlikely to be next quarter though.
• Still a bloated headcount, would like more job cuts.
Analyst Guidance
Nothing to complain about here with estimates…
We can take a more detailed look at guidance on the earnings deck though, and see that nearly everything has been lifted with the exception of revenue, which has gone down. They addressed this very honestly on the earnings call and I’m not concerned with it. I expect this trend to continue as more of the new products start hitting the bottom line and an eventual boom for revenue in 2025.
PYPL Guidance
Activity
Insiders sold into the price moving up, can’t blame them really. They have been holding on to them for a while and shares have come up in value a lot lately. Short interest remains very low at just over 2% so don’t get excited for a squeeze anytime soon. The one thing that doesn’t thrill me here is that the institutions have been trimming there positions for a while. You can see a more detail view of this below, where we can see some potential for a turn around and the level starting to stabilise. For folks in the biz… that’s a basing pattern 🤗
Balance Sheet
Not much to complain about when we take a look at the balance sheet either.
Conclusion
With my fair value sitting at $124 this stock is still a steal deal. My thesis remains intact and I’m still happy with my plan for PayPal. Fundamentally they have been improving consistently and planning well for the future. I’m still confident this stock gets where I want it to over the next year or so and I’m actually starting to think this company will do much better than my adjusted price target… If Fastlane and Advertising land well… I may be holding this company a lot higher than $124.
