PayPal Holdings, Inc. (NASDAQ: $PYPL) is a US fintech company that allows users to send and receive money from anywhere in the world where online transactions are supported. It reported a payment volume of over $400 million in its most recent quarterly results.
The company released in Q1 fiscal 2024 on Tuesday, April 30, to a tepid market reaction.
PayPal’s Q1 Results
In the first quarter, PayPal reported a 14% YoY rise in payment volume to $403.9 billion, above analysts’ estimates. The number of transactions per user went up 13% while the net revenue rose 9% YoY to $7.7 billion, above estimates by 2.59%.
Under its new accounting methodology, the non-GAAP EPS rose 27% to $1.08, below estimates of $1.22. It reported an adjusted operating margin of 18.2%, an 84 basis points improvement from the previous year.
PayPal reported $1.9 billion in cash flow from operations and $1.8 billion in free cash flow in Q124. Its trailing 13-month cash flow from operations and free cash flow were $5.6 billion and $5.0 billion, respectively. Adjusted free cash flow was $1.9 billion and $5.4 billion on a trailing 122-month basis.
As of March 31, 2024, the company had $17.7 billion in total investments, cash and cash equivalent, and $11 billion in debt. It returned $1.5 billion to its shareholders via share buybacks in the quarter and $5.1 billion on a trailing 12-month basis.
Revised Fiscal 2024 Outlook
In the second quarter, PayPal forecasts revenue to rise around 6.5% to 7% on an FX-neutral basis. GAAP EPS is forecast to be $0.83 compared to $0.92 the previous year, while the second quarter non-GAAP EPS is forecast to grow by a low double-digit percentage compared to $0.87 the previous year using the new accounting methodology.
For the full year, PayPal expects a GAAP EPS of $3.65 compared to $3.84 in fiscal 2023. The full-year non-GAAP EPS is forecast to rise by mid to high single-digit percentage to $3.83 based on the new account methodology.
Strategic Initiatives
Under the new CEO, Alex Chriss, who took over in September, PayPal continues to make huge changes. During an earnings call, the CEO stated, “We also see substantial need for continued retooling of the company, how we work with our customers and how we execute.”
According to Chriss, the focus is on ensuring high-quality and consistent growth in future. In recent years, the company’s stock has struggled amid fears that the entry of Google and Apple into the digital payments sector could take away part of its market share.
PayPal Stock Performance
Following the mixed Q1 results, PYPL shares sank 2.31% during the morning trading session on Wednesday, May 1, 2024, to $66.35 as of 09:54 AM in New York. The stock has suffered amidst rising competition in the digital payments space and is down 4.91% in the past 52 weeks compared to the 23.10% gain of the SPX.
Another contributing factor is the recent Employment Cost Index (ECI) data, which shows labor costs rising higher than expected, curbing fed rate cut expectations.
Analysts’ Outlook on PYPL Stock
According to the opinions of 36 stock analysts, PayPal has an overall moderate buy rating. The analysts forecast a wide range for the stock, with a high of $85 and a low of $57. Their average price target of $67.69 is a 2.53% upside based on the most recent price.
Should You Add PayPal to Your Portfolio?
While investors are wary of rising competition in the digital payment space, PayPal’s financial results indicate that it is poised to weather any headwinds. It has a strong balance sheet, with $83.347 billion in total assets and cash and cash equivalent of $9.693 as of March 31, 2024.
The new CEO is also working on an ambitious plan to turn things around at the company, ensuring stable long-term growth. Consequently, the analysts’ moderate buy rating accurately represents the stock’s future performance in the medium term.
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