PayPal Rises As Analysts Mull Lowered 2022 Guidance As ‘Clearing Event’

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Analysts are debating whether the worst is over for PayPal Holdings (PYPL) in the wake of March-quarter earnings that met Wall Street targets and lowered 2022 guidance. PYPL stock rose on Thursday after hitting a new 52-week low prior to its first-quarter earnings release.

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After the market close on Wednesday, the e-commerce company said March-quarter earnings came in at 88 cents a share, down 28% from a year earlier. Revenue rose 7% to $6.5 billion, said San Jose, Calif.-based PayPal.

Analysts expected PayPal earnings of 88 cents a share on revenue of $6.4 billion. A year earlier, PayPal earned $1.22 a share on sales of $6.03 billion. PayPal lowered 2022 guidance on per-share earnings, revenue and total payment volume.

Analysts are debating whether lowered guidance marks a ‘clearing event’ that could renew investor interest in the payment stock.

“The reset was necessary to making the stock investable, but distinguishing between conservatism and fundamental pressure will be challenging near-term,” Jefferies analyst Trevor Williams said in a note to clients.

PayPal Customer Growth Slowing

PYPL stock rose 4.6% to 86.44 in morning trading on the stock market today. In Wednesday’s regular session, PYPL stock hit a new 52-week low.

“The Q1 revenue beat is a positive, as is — hopefully — the guidance reset,” Mizuho Securities analyst Dan Dolev said in his note to clients. “However, with slowing (customer growth), disappointing Venmo stats and questions regarding the future of the checkout button, we believe management has some explaining to do.”

Amid worries over customer growth, the e-commerce firm said it added 2.5 million consumer accounts. That brought its total to 429 million.

In the March quarter, total payment volume processed from merchant customers climbed 13% to $323 billion, in line with estimates. Analysts had projected total payment volume of $322.6 billion.

PayPal stock holds a Relative Strength Rating of only 4 out of a best-possible 99, according to IBD Stock Checkup.

For 2022, PayPal forecast revenue growth in a range of 11% to 13% versus earlier guidance of 15% to 17% growth.

PayPal Stock Plunges In 2022

“Despite a generally good Q1, PayPal sees a more tempered outlook overall for e-commerce, cross-border (total payment volume) declining, macro-pressures and expenses running ahead,” Susquehanna analyst James Friedman said in a note. “But with network disclosures already showing an e-commerce slowdown, these headwinds may already have been priced into the shares.”

Meanwhile, PayPal stock had retreated some 55% in 2022. Shares plunged in February after its 2022 guidance missed estimates and the company abandoned five-year financial targets.

“PYPL now expects mid-teens revs growth in the second half of 2022,” Bank of America analyst Jason Kupferberg said in a note. “Some may interpret this as a good proxy for post-2022 growth. But in our view visibility on normalized earnings power remains limited, while uncertainty lingers around PYPL’s strategic pivot favoring engagement (in core checkout and new digital wallet) over net new adds.”

Also, Chief Financial Officer John Rainey plans to leave the online payment site for retail giant Walmart (WMT).

Former parent eBay (EBAY), which spun off PayPal in 2015, is almost done shifting its payment processing from PayPal to Netherlands-based Adyen.

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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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