Shares of PayPal Holdings (PYPL) experienced a downturn as the latest financial results didn’t exactly meet Wall Street’s expectations. Post-release, the market seemed to be focused on three main areas of concern.
PayPal’s reported financials were adequate, albeit not extraordinary. Non-GAAP earnings came in at $1.16 per share, just slightly above the anticipated $1.15. Revenues reached $7.3 billion, surpassing the $7.27 billion forecast. Furthermore, the total payment volume stood at $376.5 billion, surpassing estimates of $368.87 billion.
Looking to the third quarter, the company predicts revenues to reach $7.4 billion and non-GAAP earnings to fall between $1.22 and $1.24 per share. Current consensus estimates are slightly lower at $1.21 per share and $7.33 billion.
CEO Dan Schulman expressed optimism in the company’s direction, citing evidence that their investments are yielding positive returns. Schulman, who announced his retirement plans earlier this year, also mentioned that PayPal is nearing the completion of its new leadership search.
However, the market doesn’t seem to share Schulman’s confidence. PayPal’s shares dropped 11% to $65.19 on Thursday. Analysts are particularly focused on three metrics. Firstly, PayPal’s operating margin dropped from 22.7% in Q1 to 21.4%, due to increased revenue from its unbranded payment solution business. Secondly, there were signs of stress in the PayPal Business Loan segment, as management tightened underwriting standards. Lastly, the number of active accounts fell to 431 million in Q2, marking a steady decline from previous quarters.
Concerns are most pronounced around the margin issue. “Despite some positive trends, investors will scrutinize the issue of margins,” observed Lance Jessurun from BTIG. Jessurun maintains a Buy rating for the stock with a $90 target price, highlighting long-term risk/reward balance.
