Investors Dumped PayPal After Earnings — But These 2 Analysts Still Say ‘Buy’

You know there was some bad news with a company’s quarterly update when the stock tanks after the results are announced. That’s what happened Tuesday with PayPal (PYPL). The digital payments giant’s shares fell nearly 12% after the announcement of its Q3 results.

Despite exceeding expectations for Q3 earnings with a non-GAAP profit of $1.11 per share, PayPal fell just short of forecasts for Q3 revenue — $6.18 billion. Even worse, from many investors’ perspective, PayPal then proceeded to guide investors below estimates for both its Q4 earnings ($1.12 per share non-GAAP versus a Street forecast of $1.27) and for the full year (PayPal says it will earn $4.60. Analysts wanted to see $4.73). Revenues, too, will likely fall short of expectations for both the coming quarter and for the full year.

Commenting on the results, Evercore ISI analyst David Togut admitted that PayPal missed his estimates for revenue and earnings as well, and cut his price target accordingly, to $342 per share — but he left his “outperform” rating unchanged. Togut noted that it was a big 46% decline in payments via eBay auctions that really did in PayPal this quarter, but that ex-eBay, the company grew just fine, with total payment value rising 30%.

Moreover, what PayPal lost from eBay, it may be getting ready to make up for from Amazon. The company has just signed a deal with the e-tail giant to permit “Pay with Venmo” (PayPal owns Venmo by the way) beginning in 2022.

Still, the real story here — the story that spooked investors — was guidance.

For all of 2021, notes Togut, “PYPL modestly lowered all key metrics guidance metrics.” Total payment volume (TPV) growth in particular is now expected to reach no higher than 32% this year in comparison to 2020, versus a Street consensus for 34.4% growth. Revenue growth will be no more than 17% (the Street wanted 19.2%). And of course, PayPal’s prediction of $4.60 in non-GAAP profits for the year is both below the Street’s target, and below PayPal’s own previous prediction of $4.70 a share.

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Nor should investors expect to see improvements soon. In 2022, Togut notes that PayPal says revenue will only rise about 18% — more than five full percentage points below most analysts’ target of 23.5%. Based on these new numbers, Togut now predicts that PayPal will only earn about $5.07 per share non-GAAP in 2022. Furthermore, he says 2023 earnings will rise, but only to $6.75 per share — not horrible numbers to be sure (it implies 33% earnings growth in 2023, for example), but still “weaker than expected,” notes the analyst.

Separately, but commenting on the same report, Mizuho analyst Dan Dolev agreed that PayPal’s new guidance is “somewhat disappointing.” Nevertheless, he calls the deal to team up Venmo with Amazon “a big win” for PayPal. For years, notes Dolev, Amazon has been “shying away from PYPL.” Now, the giant has caved, and as a result, PayPal’s 80 million Venmo customers have the opportunity to spend their money on Amazon — and generate even more revenue for PayPal.

Ultimately, that’s good enough to make Dolev forgive the earnings miss and weak guidance, and he leaves both his “buy” rating and his $310 price target on PayPal unchanged. (To watch Dolev’s track record, click here)

Overall, PayPal has a rare bullish outlook according to the Street. TipRanks reveals that in the last three months, PYPL has received 20 Buy ratings and just 2 Holds and 1 Sell – giving it a Strong Buy analyst consensus. Meanwhile, the $293.48 average analyst price target translates into ~45% upside potential from the current share price. (See PYPL stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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