What You Need To Know
PayPal Holdings Inc. (NASDAQ: PYPL) experienced a rise in its shares following an increase in its profit outlook and a boost in spending on its platforms. In PayPal's Q3 2023 results, the company showcased a commendable performance with key financial metrics demonstrating growth. The total payment volume (TPV) grew by 15%, (13% on foreign exchange-neutral (FXN) )reaching $387.7 billion. Net revenues increased by 8% to $7.4 billion, and when considering FXN adjustments, this growth was 9%.
GAAP operating income for the quarter was $1.2 billion, marking a 4% growth, while non-GAAP operating income stood at $1.6 billion, showing an 8% increase. The GAAP EPS was reported at $0.93, a decrease from $1.15 in Q3'22, but the non-GAAP EPS grew by 20% to $1.30.
Furthermore, PayPal has adjusted its full-year growth expectation for EPS to 21%, landing at $4.98. The company has felt the benefits of US consumers' growing willingness to spend, especially post-pandemic.
Jamie Miller, formerly of EY, steps into the role of CFO for PayPal starting November 6th. Miller is recognized for her extensive experience in senior finance and operations roles at notable companies.
Alex Chriss recently stepped into the CEO role, replacing Dan Schulman. Chriss emphasizes the need to focus on the company's core strengths. However, investor concerns about the company's margins have affected its stock, which has decreased by 30% this year.
Recent changes at PayPal also include management reshuffles. Sri Shivananda, the CTO, and Gabrielle Rabinovitch, the acting CFO, are both set to leave the company. Meanwhile, Archie Deskus will take over as the new CTO.
In addition to these changes, other executives like CFO John Rainey and Venmo head Darrell Esch have also departed from PayPal.
PYPL FY'23 Outlook
Looking forward to FY'23, the company expects net revenues to grow between 6%-7% and the GAAP EPS for the full year is anticipated to be around $3.75. This represents a significant increase from $2.09 in FY'22. Furthermore, non-GAAP EPS growth is projected at about 21%, reaching approximately $4.98. PayPal also has plans for share repurchases, aiming for around $5 billion.
The CEO of PayPal emphasized the company's strong market position and assets. He expressed the need for the organization to focus on its top priorities, innovate, and execute with higher efficiency and speed. The Acting CFO reiterated the company's solid performance, highlighting disciplined expense management and a focus on accelerating profitable growth.
Why This Is Important for Retail Investors
Informed Investment Decisions: Retail investors can use this detailed financial and operational update to make informed decisions about buying, holding, or selling PayPal shares. By analyzing key metrics like revenue growth, EPS, and projected earnings, they can gauge the company's health and potential for future returns.
Leadership Changes: The introduction of new key figures, such as Jamie Miller as CFO and Alex Chriss as CEO, can signal shifts in company strategy and direction. Retail investors need to be aware of these changes as leadership often plays a pivotal role in a company's success, impacting its stock performance.
Company Growth and Strategy: The report sheds light on PayPal's strategic moves, such as focusing on core strengths and potential share repurchases. Understanding these strategies helps retail investors predict how the company might fare in the competitive financial tech landscape.
Market Position: PayPal's performance, especially in the aftermath of the pandemic, gives insights into consumer behavior and spending patterns. This not only indicates the company's current market position but also provides retail investors with broader insights into the financial tech industry and consumer confidence.
Risk Assessment: The stock's recent 30% decline, coupled with the departure of key executives, can be seen as potential red flags. Retail investors need to weigh these risks against the company's growth projections and strategic moves to determine the potential for long-term value and whether the stock aligns with their investment goals.
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How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Value Investing
Stock Price Downtrend: With a 30% decline in PayPal's stock this year, value investors might consider it as an opportunity to buy the stock at a discount, especially if they believe in the company's long-term potential.
Steady Revenues: The consistent growth in total payment volume and net revenues could suggest that the company has a stable business model, making it a potentially undervalued asset for value investors.
Discover the principles behind buying undervalued stocks with our comprehensive guide on 'What is Value Investing?'.
Growth Investing
Revenue and EPS Growth: The reported increases in total payment volume, net revenues, and non-GAAP EPS indicate robust growth. The expected rise in GAAP EPS for the coming year further cements its growth prospects.
Market Position: The new CEO's emphasis on the company's strong market position and assets, coupled with plans for share repurchases, might appeal to growth investors.
Innovative Leadership: The new leadership, including the CEO and CFO, might bring fresh strategies and innovations, driving future growth.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Momentum Investing
Recent Performance: Momentum investors, who typically follow recent stock price trends, might be wary given the recent 30% decline in PayPal's stock. However, a turnaround in the stock price trend after the Q3 results might encourage investors to hop on the upward momentum.
News & Announcements: The changes in key executive positions and other major corporate announcements can lead to short-term price movements, which momentum investors can capitalize on.
Momentum investing is an approach where investors buy stocks that have shown an upward trend in hopes they will continue to rise; learn more in our detailed article, What is Momentum Investing?
PayPal Q&A
In a Q&A session with analysts, on PayPal’s Earnings Conference Call for Q3 2023, the CEO of PayPal Holdings, Inc. delved into the company's assets, product portfolio, and its strategy towards Small Businesses (SMBs).
The CEO praised PayPal's employee base and highlighted the strengths of their global platform, notably mentioning products like "Buy Now, Pay Later" and the potential growth areas they present. The popularity and potential of Venmo, especially its acceptance and expansion, were also discussed, with an emphasis on its significance in the market and the plans for its future growth.
Further, the Acting CFO of PayPal shared insights on the company's financial outlook. There was a particular focus on the trends in their checkout business and how they are planning prudently for Q4. The discussion also touched upon the importance of balancing investment with efficiency, emphasizing the potential of automation and platform investments to drive down costs.
In closing remarks, the CEO expressed confidence in PayPal's ability to grow and improve. There was a clear emphasis on executing with greater clarity, and focus, and the overarching theme was a drive towards profitable growth. The CEO concluded with plans to add senior talent to the team and a promise to unveil a clear growth plan in the company's next call in February.
Read What Others Are Saying
Bloomberg: PayPal Reports Increase in Consumer Spending, Names Miller CFO
PayPal: PayPal Names Jamie Miller as Chief Financial Officer