PayPal (PYPL) is scheduled to report results of its fourth fiscal quarter after market close on February 9, with a conference call scheduled for 5:00 pm EDT. What to watch for:
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ATTRACTIVE SETUP: In a research note ahead of quarterly results, Bernstein says that PayPal’s fourth quarter results matter less than the guidance for 2023 and first quarter. The firm sees the setup going into earnings as positive as buyside seems already below the street on 2023 revenues and expectations on revenue guidance, recent layoffs suggest further upside to non-GAAP EPS and margins versus current expectations, weak button data and potential share losses is increasingly been digested by the market, and valuation discount to Visa (V) and MasterCard (MA) has widened to 4-7 turns. Unless Q4 numbers surprise very negatively on revenues, Bernstein sees an attractive setup on earnings.
COST CUTTING NEEDED: Earlier this week, Raymond James downgraded PayPal to Market Perform from Outperform without a price target. The firm cites the stock’s outperformance this year along with the firm’s "cautious stance" on the company’s Q4 results for the downgrade. While PayPal shares remain "inexpensive," multiple expansion will provide difficult if branded checkout is losing market share, Raymond James says. The firm thinks cost cutting will be needed to offset sales weakness.
WORSE E-COMMERCE TRENDS: On Wednesday, Mizuho lowered its price target on PayPal to $100 from $105, while keeping a Buy rating on the shares. The firm believes e-commerce trends worsened in January. Although PayPal’s share of web traffic across partner sites slowed considerably in January, there is no concrete evidence of a step-up in market share losses to Apple (AAPL) Pay, Mizuho says. The firm believes slower e-commerce trends "merit more caution" in PayPal shares.
On Monday, Morgan Stanley also lowered PayPal’s price target to $133 from $136 but maintained an Overweight rating on the shares ahead of the company’s Q4 earnings report. The firm is trimming its estimates, noting that recent public management commentary indicated that PayPal may be basing their 2023 planning around flat to slightly negative e-commerce growth, which the firm acknowledges as "probably more conservative than most of the market." However, while the near-term could be choppy, the firm still sees PayPal outpacing e-commerce growth going forward and thinks better execution on cost savings can partially offset the EPS impact.
WORKFORCE CUTS: In a message shared with PayPal employees late last month, President and CEO Dan Schulman stated that, " Today, I’m writing to share the difficult news that we will be reducing our global workforce by approximately 2,000 full time employees, which is about 7% of our total workforce. These reductions will occur over the coming weeks, with some organizations impacted more than others. We will treat our departing colleagues with the utmost respect and empathy, provide them with generous packages, engage in consultation where required, and support them with their transitions… We will face this head-on together, drawing on the unparalleled scale of our global platform, the strategic investments we have made to strengthen our core capabilities, and the trust and loyalty of our customers."
Published first on TheFly
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