Stock Analysis & Ideas

PayPal (NASDAQ:PYPL) Q3 Earnings Preview: Here’s What to Expect

Story Highlights

PayPal is scheduled to announce its third-quarter results on Thursday. While the company is expected to be under pressure due to near-term headwinds and fears of an impending recession, most Wall Street analysts continue to be optimistic about its long-term growth potential.

Fintech giant PayPal (NASDAQ:PYPL) is scheduled to announce its third-quarter results after the markets close on November 3. There are concerns about the results being impacted by a slowdown in consumer spending amid growing fears of a potential recession.

Analysts’ Q3 Estimates Following an Upbeat Quarter  

PayPal’s revenue growth moderated as the pandemic tailwinds faded following the reopening of the economy. However, the company delivered better-than-anticipated second-quarter results despite a tough backdrop. Q2 revenue grew 9.1% year-over-year to $6.8 billion, with Total Payment Volume (TPV) rising 9% to $339.8 billion. Adjusted EPS declined 19% to $0.93 but topped expectations.    

However, PYPL stock continues to trade at a significant discount to its 52-week high as growth stocks have been battered amid rising interest rates. It’s worth noting that despite the steep pullback, PayPal is trading at a higher forward P/E (based on adjusted earnings) of 21.3 compared to the sector median P/E of 18.4.  

Meanwhile, analysts expect the company’s Q3 EPS to decline 13.5% year-over-year to $0.96. Revenue is expected to rise 10.3% to $6.82 billion.  

PayPal raised its full-year adjusted EPS guidance following its Q2 results. Analysts will keenly look for any updates to the company’s outlook and management’s commentary about the road ahead.

Another interesting metric to watch would be the net new active accounts (NNAs) added in Q3. PayPal added nearly 400,000 NNAs in Q2 and a total of 2.8 million in the first half of this year. The company reassured investors that it expects to add 10 million NNAs in the full year.

Is PayPal a Buy, Sell, or Hold?

Bank of America Securities analyst Jason Kupferberg sees upside potential in PayPal’s Q3 margins and EPS but expects revenue to be almost in line with consensus. The analyst sees an upside to profitability due to the company’s cost control efforts and the involvement of activist investor Elliott Management.

Kupferberg reiterated a Buy rating on PayPal stock and lowered the price target to $112 from $114.

Overall, PayPal scores the Street’s Strong Buy consensus rating based on 23 Buys and six Holds. The average PayPal stock price target of $119.63 implies 43.1% upside potential. PYPL stock has tumbled nearly 56% year-to-date.

Conclusion

Macro challenges are expected to impact PayPal’s near-term growth, including Q3 results. However, most Wall Street analysts remain bullish on the company’s long-term prospects, given the growing adoption of digital payments.

Disclosure

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