“PayPal delivered a strong second quarter and first half, and I’m confident we’re on the right track. We delivered our best transaction
margin dollar growth since 2021, and we are making steady progress on our strategic transformation, while investing in innovation
and operating more efficiently.
Given the strength of our business, we are raising our 2024 guidance and increasing share repurchases. We are operating from a
position of strength, delivering for our customers, and focusing on long-term profitable growth.”
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 8% to $7.9 billion; 9% currency-neutral (FXN).
Transaction margin dollars increased 8% to $3.6 billion.
GAAP operating income increased 17% to $1.3 billion; non-GAAP1
operating income increased 24% to $1.5 billion.
GAAP operating margin expanded 126 basis points to 16.8%; non-GAAP operating margin expanded 231 basis points to 18.5%.
GAAP EPS increased 17% to $1.082
; non-GAAP EPS increased 36% to $1.19.
Updated Vizual Summary Charts
Key Charts
The things I love the most:
• Outstanding shares are getting burned down aggressively with a further $6b ear marked. That’s 10% of the float.
• Active accounts increased but we can also pair that with transactions per active account rising. Double noice there.
• Total payment volume rising nicely. This was especially nice because they bucked the trend and got a new all time high per quarter… NOT during holiday season. Despite it coming in .7% lower than expected. Silver lining!
• Transaction margins are steadily improving. Still 19 basis points lower but have been improving since 3Q 2023. Down from a 558 basis short fall.
• Cash still looks sexy and debt stable.
• Loved the 33.71% beat on EPS, Those buybacks are really helping boost that.
• Transaction expense rate is trending down.
• Lifted guidance for the next quarter and full year. Though I still think they are sand bagging a little.
• Fastlane product launch goes live this next quarter. Very excited to see how that goes!
Here’s what I like less:
• Take rate and transaction take rate down QoQ and YoY but marginally soon. I think this will revert back to expansion at some point, just like transaction margins have. Definitely worth keeping an eye on though.
• Still a bloated headcount, would like more cuts.
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 everything has been lifted. I expect this trend to continue as more of the new products start hitting the bottom line. Amazing to also see that the increase in cash flow is being used for increased buybacks.
Activity
This data is a little out of data but still a nice signal. Insiders continue to load up on this and short interest remains very low at just over 2%. 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.
Balance Sheet
Not much to complain about when we take a look at the balance sheet either.
A Minor Blemish
Nearly every metric showed growth YoY but there’s one that didn’t, and I don’t care about it either. eBay has had it’s time in the sun and its market share has been eaten by companies like Amazon and Vinted.
The Charts
It’s been a somewhat unfortunate time to release earnings for PayPal. We had some bad economic data today with employment costs being higher than expected and tomorrow with have a Fed rate decision and more key data. The result is a broad market sell off. Not the best time to release earnings, but we are green!
Price did make a good attempt at closing the gap to the upside, which is the red box on the chart. Once it failed it has come back down to fill the gap it created when it opened this morning. Which at least takes that off the table in the future.
Overall the price action has been a little disappointing, I was hoping we would get above the gap and turn it into support. Price now looks like it wants to turn this volume shelf into support. Still looking bullish to me though.
Conclusion
My thesis remains intact and I’m still happy with my plan for PayPal. Fundamentally they have improved and I’m still confident this stock gets where I want it to over the next year. I’ actually starting to think this company will do much better than my initial price target… If Fastlane and Advertising land well… I may be holding this company a lot higher than $100.
