PayPal Holdings, Inc. (PYPL) kicked off the week with a strong earnings report, demonstrating continued growth in its core business despite a challenging economic environment. The digital payments giant reported third-quarter revenue of $7.85 billion, just shy of analysts’ expectations of $7.88 billion. While total payment volume came in slightly below estimates at $422.6 billion, the company achieved robust transaction margin dollars (TMD) growth, fueling a wave of optimism among investors.
Despite a marginal miss on revenue, PayPal’s third-quarter performance showcased healthy growth across key metrics. Total payment volumes increased by 9% year-over-year, with payment transactions rising 6% to $6.6 billion. The company also saw a 9% jump in payment transactions per active account on a trailing 12-month basis, reaching $61.40. While total active accounts dipped by 0.9% to 432 million, this slight decline was largely anticipated.
The most notable highlight of the report was the strong TMD growth. TMD increased by 8% year-over-year (6% excluding float income), surpassing analysts’ expectations of 3% to 4%. This impressive growth was attributed to several factors, including increased interest in customer balances, improvements in risk management, and the continued expansion of branded checkout, Venmo, and Braintree services.
Looking ahead, PayPal forecasts low-single-digit revenue growth for the fourth quarter, falling short of analyst estimates of 5% to 6%. This slight guidance reduction is likely due to the company’s continued price-to-value strategy, focusing on profitability over volume growth. The anticipated rise in marketing spending is expected to lead to a low-to-mid single-digit decline in adjusted EPS, aligning with analyst expectations of 3% to 6%.
Despite the slightly conservative fourth-quarter guidance, PayPal’s strong TMD performance and its positive outlook on TMD growth have created a bullish sentiment among investors. The company’s stock price saw a mild positive reaction in the immediate aftermath of the earnings release. This positive sentiment stems from the belief that PayPal’s robust TMD growth and broad growth drivers, including its expanding presence in branded checkout, Venmo, and Braintree, will continue to drive value creation.
Overall, PayPal’s third-quarter earnings report paints a picture of a company that is successfully navigating the current economic landscape and remains committed to driving long-term shareholder value. While its fourth-quarter guidance might reflect a slight slowdown, the company’s strong TMD growth and its commitment to its price-to-value strategy provide a promising outlook for the future.
