PayPal slumps 11% after Q2 earnings

Shareholders of PayPal Holdings (PYPL.US), US payments company, are having a bad day. Stock is slumping over 10% after the company reported disappointing margins. However, headline earnings were not that bad and matched analysts' expectations. Company also expects improvement in the second half of the year. Let's take a quick look at the report.

In-line sales and profit but margins disappoint

Although it may sound surprising given today's performance of PayPal stocks, earnings report for Q2 2023 from PayPal Holdings was not that bad. Company reported an over-7% jump in revenue to almost $7.3 billion - more or less in-line with market forecasts. Adjusted EPS was also in-line with $1.16 expected. Payment volume as well as number of transactions also increased at a decent pace. Drop in today's share price is driven by miss in operating margin. There has been concerns over PayPal's ability to grow its high-margin brands and issues with improving margins show that those concerns are not baseless.

Q2 2023 earnings

• Revenue: $7.29 billion vs $7.27 billion expected (+7.3% YoY)
• Adjusted EPS: $1.16 vs $1.16 expected (+24% YoY)
• Operating Income: $1.6 billion (+20% YoY)
• Adjusted Operating Margin: 21.4% vs 22.0% expected
• Total payment volume: $376.5 billion (+11% YoY)
• Payment transactions: 6.1 billion (+10% YoY)
• Total active accounts: 431 million vs 429 million a year ago
• Share repurchases: $1.5 billion

PayPal remains optimistic

While PayPal's earnings failed to assure investors that it's capable of improving margins, the company stays optimistic that good times are ahead. Company's CEO said that he expects a rebound in discretionary spending as inflation slows. He said that the slowdown in e-commerce growth seems to be over as it begins accelerating again.

Forecasts for Q3 2023 were slightly higher than expected with the company expecting $4.7 billion in revenue and adjusted EPS in the $1.22-1.24 range. Also, the company expects adjusted EPS to grow 20% in full-2023, to around $4.95. New forecast for full-year share repurchases is now around $5 billion.

Q3 2023 forecasts

• Revenue: $7.4 billion vs $7.3 billion expected (+8% YoY)
• Adjusted EPS: $1.22-1.24 vs $1.22 expected (+13-14% YoY)

Full-year 2023 forecasts

• Adjusted EPS: around $4.95 (+20% YoY)
• Share repurchases: around $5 billion

A look at the chart

In spite of solid forecasts, higher buyback forecast and optimistic comments from CEO, investors do not seem to be convinced. While stock managed to bounce off the daily lows, it is still down 11.2% on the day. Taking a look at the chart at D1 interval, we can see that share price plunged below a number of supports - $71.50 price zone, lower limit of the bullish channel as well as 50- and 200-session moving averages. From a technical point of view, a short-term upward trend launch at the end of May ended and we have seen as bearish reversal. The next support to watch can be found in the $63 area. However, it should be said that earnings presented by PayPal were not that bad and today's move may be overdone. Having said that, we cannot rule out that the stock will attempt to regain some ground in the coming days.

Source: xStation5