This past quarter was one the market seemed to like. PayPal reported its Q1 earnings before the bell today and beat on both revenue and total payment volume. Additionally, the company unveiled a new reporting methodology that didn’t result in any turbulence. All in all, the quarter appears to be a win.
In addition to these strong numbers, PayPal investors continue to benefit from impressive buybacks and a strong forward-looking shareholder return profile. Let’s dive into what to make of these numbers, and why the Street appears to be shifting its view on the fintech giant.
Wall Street is Trying to Be Hopeful
As PayPal Holdings releases its first-quarter earnings report, investors see signs of CEO Alex Chriss’s strategies. PayPal stock rose 8% in 2024, and is up more than 2% after the company released its earnings before the bell today.
Analysts expected earnings per share to come in around $1.22, but the company reported $1.08 per share on an adjusted basis. This would normally tank the stock, as that’s a big miss. But PayPal did roll in some adjustments to its earnings which negatively impacted this number.
Without those adjustments, PayPal would have brought in $1.40 in adjusted earnings, well above the consensus range. PayPal has also provided earnings guidance for upcoming quarters in the “mid to high single-digit percentage” range, up from roughly flat in prior quarters. The market clearly likes this beat and raise, and the fact that PayPal repurchased $1.5 billion of its own stock this past quarter, aiming for $5 billion total this year.
Strong Reason to Buy
In January, Chriss outlined his plan to enhance offerings for small and medium businesses with PayPal Complete Payments. With his track record at Intuit, revenue grew by 23% annually. Scaling PayPal Complete Payments could reverse declining transaction margins. Additionally, PayPal aims to streamline checkout with Fastlane, reducing checkout times by 40%. According to BigCommerce, Fastlane implementation led to conversion rates as high as 70%.
Chriss also outlined plans to use AI for personalized recommendations and cash-back rewards, aiming to turn one-time shoppers into repeat customers. If successful, PayPal’s transformation offers an attractive risk-reward profile at its current valuation.
PYPL Stock Appears To Provide Excellent Value
Following the pandemic, PYPL stock soared, driven by strong digital payment growth which has since dissipated. The company’s unsustainable growth profile was proven out, and investor sentiment shifted abruptly in this stock. Accordingly, PayPal is still down roughly 70% from its all-time high set post-pandemic.
The thing is, growth appears to be picking up again, and the company’s management team has issued some strong guidance, which is shifting investor sentiment back into positive territory. We’ll have to see if this momentum can continue from here. By all accounts, this was a very strong quarter.
PayPal remains a growth-at-a-reasonable-price option for investors right now, and I’m still bullish on this name. Until the company stops producing strong earnings and share buybacks, it can run a lot further.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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