PayPal allays growth fears after raising annual profit forecast

6:35 pm Wednesday, November 01st, 2023

By Manya Saini

(Reuters) -PayPal Holdings raised its forecast for full-year adjusted profit above Wall Street estimates on Wednesday, with executives striking an optimistic tone for the payments giant’s long-term growth strategy.

Shares of the company extended gains on comments from newly appointed CEO Alex Chriss that he expects to grow revenue outside of purely transaction-related volume. Stock was last up 4.2% in aftermarket trading.

“We have opportunities to accelerate our revenue growth while reducing our expenses, helping further drive operating leverage,” Chriss said on a call with analysts, adding the company is working on a comprehensive plan for 2024.

Separately, it also named Jamie Miller as chief financial officer effective Nov. 6, replacing acting finance chief Gabrielle Rabinovitch.

Meanwhile, consumer spending has also held up remarkably well this year, keeping the outlook for PayPal bright going into the holidays, as retailers dangle steep discounts on everything from electronics to clothing to entice inflation-weary shoppers.

PayPal said it expects adjusted profit for the full year to be about $4.98 per share from $4.95 earlier. Analysts on average had expected $4.92, according to LSEG data.

Analysts, however, remain focused on PayPal’s margins that have underwhelmed investors in recent quarters. The company’s low-margin business products have grown strongly, while growth in its branded products has slowed due to increased pressure from competitors such as Apple.

PayPal cut its annual forecast of adjusted operating margin expansion to 75 basis points from 100 basis points expected earlier. Adjusted operating margin was 22.2% in the third quarter.

The company said it expects operating margin on an adjusted basis to contract in the fourth quarter compared with a year earlier.

“New quarter, same story as gross profit headwinds persist on continued take rate pressure, offsetting better TPV growth,” said analysts at Jefferies.

PayPal’s revenue jumped 9% to $7.4 billion on FX-neutral basis in the third quarter ended Sept. 30, while total payments volume increased 13%.

It earned $1.30 per share on an adjusted basis in the quarter, beating expectations of $1.23 per share.

(Reporting by Manya Saini in Bengaluru; Editing by Krishna Chandra Eluri)