In its most recent quarterly release, digital payments leader PayPal beat Wall Street expectations with $6.8 billion in sales and $1.08 in adjusted earnings per share (EPS) for the third quarter of 2022. However, a dismal revenue forecast for Q4 contributed to the stock’s decline following the release since the market is more concerned with projections than actual results. The fintech giant’s status as the top growth company for investors has come into question due to the impending slowdown in PayPal’s ability to produce yearly revenue growth of more than 15%.
PayPal’s total number of active accounts is now 432 million, up from a quarter-old high of 2.9 million on September 30. The average number of transactions made by each user was 50.1, an increase of 13% from the previous year, indicating high levels of user engagement. The total number of payments processed throughout the quarter was $337 billion, a staggering sum that is being closely monitored by investors. Moreover, the company’s free cash flow has increased by 37% since last year to $1.8 billion, further demonstrating PayPal’s robust financial health.
Since its creation in 1998, PayPal has been a market leader in the digital payment sector, giving its users multiple ways to transact and transfer funds online. It has made monetary exchanges over the internet quick, easy, and simplified. eBay and Amazon, two of the largest online retailers, both accept PayPal payments. The platform’s instant withdrawal and deposit process has made it popular among travellers, online gamers as well as several reputable gaming sites. Top PayPal casinos like LeoVegas and Duelz prefer the digital payment platform for its streamlined services and secure payment processing. Besides facilitating cross-border financial transactions and issuing debit and credit card readers to merchants of all sizes, PayPal also offers consumer finance in the form of PayPal Credit.
In addition to its extensive services, PayPal has now entered into a strategic collaboration with Apple that will enable PayPal’s merchants and customers to use Apple Pay in a number of different payment scenarios. As a result of these, PayPal’s offerings will become even more pervasive in the already crowded payment services market, which may lead to more revenue in the long run.
Even while “slowing economic trends” accounted for 91% of PayPal’s total income in the third quarter, the company, like virtually all others, is suffering the brunt of challenging macroeconomic issues. PayPal CEO Daniel Schulman attributed this to high inflation and an “unpredictable holiday season.”
Apart from the external challenges, the company also has issues on the inside that investors need to be aware of. Recently, Schulman downgraded the company’s target of amassing 750 million active accounts by 2025. Strategically, it makes more sense for the firm to focus on acquiring higher-value customers who would transact significantly more, but this shift will have a chilling effect on the company’s overall account growth.
There will be a significant slowdown from previous years as it is expected that just 8–10 million net new active accounts will be added by the end of 2022. Moreover, the California-based corporation forecasted dismal e-commerce growth in the fourth quarter and reduced its 2022 adjusted revenue growth target to 10% from 11%.
The management at PayPal, however, increased their earnings per share (EPS) forecast for the entire year from $3.92 to $4.08, citing the benefits of cost savings and the release of credit loss reserves. Nonetheless, Q4 revenue is anticipated to be lower than Wall Street was expecting, coming in at less than $7.4 billion. Shares of PayPal currently trade at a forward price-to-earnings ratio of around 17, reflecting the company’s 54% drop in 2022.
