UPDATE: This article includes analyst notes and comments from PayPal's leadership during the earnings call.
PayPal's focus on artificial intelligence-driven checkout technology has helped spark a bull run for its stock, though Wall Street analysts say the road ahead may not be as easy.
The payment company's stock fell almost 7% in trading early Tuesday, based partially on concerns about the potential of PayPal's Fastlane checkout system to continue its robust growth into 2025, the impact of price increases at mobile commerce unit Braintree and the potential of lower interest rates to reduce payment volume.
"We're early in our transformation journey and have a lot of work ahead of us to get to where we want to be," CEO Alex Chriss said during Tuesday's earnings call.
Inside the numbers
For the quarter ended Sept. 30, PayPal reported net revenue of $7.85 billion, up 6% from the prior year's third quarter and just below analyst projections of $7.88 billion according to FactSet.
Earnings per share rose to 99 cents from 93 cents a year ago, although net income eased to $1.01 billion from $1.02 billion in the year-ago period.
The payment company also reported adjusted earnings of $1.20 per share, up 22% from the prior year and beating Wall Street's call for $1.07 a share, according to FactSet.
PayPal's active accounts were 432 million at the end of the third quarter, up from 429 million a year ago and on par with analysts' projections of 429.3 million. Total payment volume was $422.6 billion, better than analysts' expectations of $421.4 billion and up from $387.7 billion the prior year.
PayPal's stock was trading around $86 before the earnings report, up from about $36 in January. But shares fell to about $78 early Tuesday, as investors parsed the performance for signs that the company is turning a corner following a
"PayPal is trying to make up lost ground in physical checkout, having failed to execute on its original retail strategy several years ago," said Aaron McPherson, principal at AFM Consulting. "In the meantime, competitors like Toast and Square have continued to build out their networks and capabilities."
For the full year, PayPal tightened its EPS range forecast to $3.92-$3.96, from $3.88-$3.98 in July. It raised its adjusted earnings guidance for the year to high teens growth, from low to mid-teens growth previously.
For the fourth quarter, PayPal expects low single-digit growth for revenue as a result of the impact of its price-to-value strategy and prioritization of profitable growth. The company widened its forecast for earnings per share to $1.03-$1.07, from around $1.05 previously.
In a research note following Tuesday's earnings, Jeffries said the fourth-quarter projections of low single digitl EPS growth were below Wall Street estimates of 5.5%, noting slower total processing volume from Braintree, PayPal's mobile and online payment technology unit.
Mizuho said in a research note that PayPal's revenue forecast would weigh on the stock in the short term, but transaction-margin dollar growth of 8% is "performing well."
A research note from Baird noted PayPal's quality of revenue is increasing as it focuses on profitability over account growth.
Braintree — which counts Uber, AirBnB, Doordash and Spotify among its payment-processing clients — has raised its rates, which could potentially cut into payment volume.
PayPal is also considering the impact of Federal Reserve rate cuts into its 2025 planning, said Jamie Miller, executive vice president and CFO of PayPal, during the earnings call. A 25-basis-point rate cut removes about $40 million of transaction value, Miller said. If the Fed were to cut interest rates by 150 bps, it would cut up to 2% in transaction volume.
"We are focused on what we are in control of," Chriss said, adding PayPal is focused on growing branded checkout, improving the economics for its Braintree financial technology unit or expanding its non-payment related value-added services.
In the fast lane
PayPal has been showcasing its
More than 1,000 merchants are using Fastlane, and more than 170 million consumers have enrolled. "The scale of consumers is one of the reasons that so many platforms are partnering with us," Chriss said.
But some analysts think PayPal, which faces competition from Stripe, Block and other digital checkout systems, will be challenged to achieve robust growth next year.
Bernstein in October downgraded PayPal to market-perform from outperform, saying the potential for substantial stock gains appears limited.
In a research note issued before PayPal's earnings, Jeffries said PayPal's stock has run on a contribution from Fastlane that are "unlikely to be impactful" in the next 12 months. And a pre-earnings release research note from William Blair said, "From here we believe that the road becomes more difficult as PayPal seeks to boost branded volume growth and Venmo monetization, efforts we see challenged by strong wallet competition and consumer inertia."
Fastlane, which doesn't require users to have PayPal accounts, draws from consumers' past payments to recommend a payment option, giving PayPal the ability to act as a
BigCommerce, one of Fastlane's initial clients, said e-commerce checkout conversion increased to 70% from about 45% following Fastlane's deployments.
Following BigCommerce, PayPal has been accumulating partners to rapidly
It's part of a series of deals PayPal is making to grow the streamlined checkout product, which serves as an alternative to online payment systems from the card networks and other fintechs. A more recent partnership with payment processor
The partnerships are important as PayPal migrates large enterprises into Fastlane, Chriss said. "Many of these large enterprises have multiple processors," he said. "Fastlane will take time to ramp up before we see its impact in our numbers."
PayPal is also trying to improve its ability to monetize Venmo, contending the P2P app has "room to grow" in boosting usage of Venmo's debit card and bundling Venmo with PayPal's checkout products to lure merchants.
"Venmo will eventually have multiple monetization layers," Chriss said.
There seems to be a plan to put Venmo forward as a payment method at the point of sale, mainly through a linked debit card, but this is not something that Venmo is known for, and it is difficult to expand offerings when a company has a strong brand identity, McPherson said.
"That can actually work against you," McPherson said. "That said, I do see a lot of individual sellers and micro merchants embracing Venmo as a payment method, since they already have it for their own personal use. I'm not sure it can scale up to larger merchants, however, who are still very card-focused."
Among other publicly traded payment firms, Visa reports earnings today following the market close, Mastercard reports earnings on Thursday before the market opens, and Block reports earnings on Nov. 7.
