Fintech giant PayPal (NASDAQ:PYPL) is scheduled to announce its fourth-quarter results after the stock market closes on February 9. The company’s Q3 earnings and revenue topped expectations, but Q4 guidance lagged estimates. Investors will mainly focus on new customer additions in a tough macro backdrop and the company’s 2023 outlook.
Q4 Earnings to Gain from Productivity Initiatives
PayPal has been under pressure following the reopening of the economy as pandemic tailwinds faded and e-commerce growth slowed down. Moreover, high inflation impacted customers’ spending power. The company’s revenue grew 11% year-over-year to $6.85 billion in Q3 2022, while adjusted EPS fell 2% to $1.08.
However, investors were disappointed with PayPal’s subdued revenue growth guidance of 7% for Q4 2022. It projected Q4 2022 adjusted EPS in the range of about $1.18 to $1.20, compared to $1.11 in the prior-year quarter. Nonetheless, the company raised its full-year 2022 earnings guidance to reflect the benefit of productivity initiatives.
During the Q3 earnings call, the company disclosed that it is on track to generate cost savings of $900 million in 2022 and at least $1.3 billion in 2023. PayPal recently announced its decision to lay off 7% or about 2,000 employees as part of its cost reduction efforts.
Meanwhile, analysts expect Q4 adjusted EPS to grow nearly 8% to $1.20. They expect revenue to increase by 7% to $7.39 billion. A key metric to watch would be net new active accounts (NNAs). PayPal reported net new active accounts of 5.7 million in the first nine months of 2022 and guided for NNAs in the range of 3 million to 4 million for Q4 2022.
Is PYPL a Buy, Sell, or Hold?
Wall Street is cautiously optimistic about PayPal, with a Moderate Buy consensus rating based on 14 Buys, five Holds, and one Sell. The average PYPL stock price target of $100.61 implies nearly 21% upside potential. Shares have advanced 12% so far in 2023.
Conclusion
PayPal’s cost reduction initiatives and higher revenue are expected to drive an 8% rise in its fourth-quarter adjusted EPS. Investors will be keen to know about the progress of the company’s productivity initiatives and the 2023 outlook. Based on its preliminary guidance, the company expects at least 15% growth in its 2023 adjusted EPS.
