PayPal Earnings Disappoint Again, Shares Sink: When Enough Will Be Enough?

  • Stock Market Analysis
  • Editor's Pick
  • PayPal's recent quarterly earnings disappointed investors, contributing to the stock's long-term downtrend.
  • Despite challenges, the company's financial stability, profitability, and a significant buyback program contribute to its strengths
  • Let's weight in the pros and cons of buying the company's latest dip.
  • In 2024, invest like the big funds from the comfort of your home with our AI-powered ProPicks stock selection tool. Learn more here>>

Last evening, PayPal (NASDAQ: PYPL ) released its quarterly earnings , disappointing investors once again. Alongside Alibaba Group Holdings (NYSE: BABA ), this stock has been a significant letdown.

Although the company's numbers have shown a return to growth, the stock still lingers at around -80% from its highs. Judging by the trend in premarket trading, when the stock lost around 10%, it appears likely to experience even more declines.

PayPal Weekly Chart

That said, let's look at some numbers from the latest quarterly report (4Q 2023):

  • Revenue: +9% (8 Billion, above expectations)
  • EPS, Earnings per share: $1.48 (non-GAAP) +19% (above expectations)
  • TPV (Total payment volume) +15% to 409.8B
  • Transaction Margin 3.7B (flat YoY)
  • Active Users: 426 Million (-2% YoY)

As for Guidance 2024, these are the company's expected figures:

  • Revenues +7%
  • EPS: 5.10 Usd (in line with 2023)
  • Buyback: 5B
  • Free Cash flow: 5B

Now, let's analyze the decline after the quarterly results. It is primarily driven by what the market is demanding from PayPal today.

  1. Growth (in revenue, active users, EPS)
  2. Improvement in marginality
  3. Management of competitive advantage

The markets need to recognize that despite 4Q 2023 surpassing expectations, it is now history, and the focus has shifted to the future.

Management emphasizes its inability to wield a magic wand and see instant results from innovations, corporate changes, and expense reductions within a mere 3 months.

Hence, 2024 was declared a "transition year," acknowledging the time required for recent initiatives to bear fruit.

Adding to the complexity, PayPal is currently viewed as a 'sell' stock amid uncertainties. This complicates shareholders' portfolio management.

Turning to strengths, explored with the assistance of InvestingPro:

Valuations: The stock, having declined over 80% from its highs, is now attractively valued, with a P/E ratio around 11X—a significant undervaluation in both the stock and the sector.

Profitability: Despite the post-COVID period challenges, the stock continues to generate profits, with earnings rebounding to positive growth values.

Shareholder Benefits: A significant buyback program utilizing the 5 billion Free Cash Flow—equivalent to almost 10% of the company's current value—directly benefits shareholders.

Financial Stability: With 17.3 billion in cash and short-term investments, adjusted to 6 billion net of debt, PayPal's financial stability adds substantial value to its overall evaluations.

Overall, looking at the ProTips, we can see several interesting points:

ProTips

Conclusion

In conclusion, PayPal currently finds itself in a phase of maturity and transition, grappling with negative market sentiment and the need to rebuild trust.

The new management team appears well-equipped to tackle this challenge, and it's important to recognize that 2024 is a transitional year, which is a common occurrence.

This serves as a reminder that in markets, especially in equities, patience is a crucial element and a key characteristic of successful investors. It's worth noting that the average holding period for a stock today is around 6 months.

In the long run, what truly matters is profitability and the company's ability to generate profits, an aspect where PayPal seems well-positioned.

Additionally, from a cyclical perspective, the market is currently factoring in numerous pessimistic scenarios.

Therefore, any positive shift in the company's data is likely to be met with increased emphasis and potentially lead to a change in market sentiment.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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