PayPal's Stock Pulls Back After Q2 Earnings: Blame eBay?

Paypal Holdings Inc PYPL shares are down 5% after the company reported second-quarter sales and profit numbers that disappointed the market.

PayPal reported adjusted EPS of $1.15, slightly beating analyst estimates of $1.12. Revenue for the quarter was $6.24 billion, missing consensus forecasts of $6.27 billion. Revenue was up 19% from a year ago.

Net profit in the quarter dropped 23% to $1.18 billion. PayPal said it added 11.4 million net new active accounts, bringing its total number up to 403 million.

Total payment volume in the quarter was up 40% to $311 billion. Venmo payment volume was up 58% to $58 billion.

Looking ahead, PayPal guided for third-quarter EPS of $1.07 on between $6.15 billion and $6.25 billion in revenue. Both numbers missed analyst estimates of $1.14 and $6.44 billion, respectively.

Related Link: 4 Alphabet Analysts Break Down Q2 Earnings: 'Google Remains Our Top 2021 FANG'

Long-Term Growth Runway: Credit Suisse analyst Timothy Chiodo said PayPal continues to generate impressive growth numbers at scale and has several wildcards that could contribute in the future.

“The medium-term outlook puts PayPal in a rare group of companies that can compound ~20%+ topline at this level of scale,” Chiodo wrote in a note.

RBC Capital Markets analyst Daniel Perlin said PayPal has hit a speed bump, but his long-term bullish thesis remains intact.

“Although the underlying growth of PYPL remains strong, the optics and near-term headwinds associated with eBay’s transition to managed payments are putting pressure on Q3/21 and FY21 guidance,” Perlin wrote.

Rosenblatt Securities analyst Sean Horgan said PayPal expectations are coming back down to earth, but there is still massive potential Venmo upside.

“Net/net, we expect shares to move higher throughout the year as the firm provides updates on its slew of new rollouts (3Q next-gen digital wallet refresh, early payday, P2P two-way messaging, etc.),” Horgan wrote.

Blame eBay: Raymond James analyst John Davis said PayPal’s accelerated run-off of its eBay Inc EBAY portfolio is the primary reason for the guidance miss.

“Simply put, PayPal should continue to benefit from the secular shift to ecommerce that should drive a roughly 20% revenue growth CAGR, which coupled with margin expansion and capital allocation (M&A + buybacks) should result in an earnings CAGR north of 20% over the next several years,” Davis wrote.

Needham analyst Mayank Tandon said the eBay transition soured otherwise solid second-quarter and guidance numbers.

“While the eBay transition dampens the NT outlook, trends in the rest of the business remain solid as digital payments continue to surge,” Tandon wrote.

Buy The Dip: KeyBanc analyst Josh Beck said temporary eBay related weakness in PayPal shares is creating a buying opportunity for investors.

“Positives such as 43% merchant services TPV growth, ~180% Pay with Venmo growth, and $1.5B of BNPL support our premier payments platform thesis; thus, we would be buyers on the pullback,” Beck wrote.

Morgan Stanley analyst James Faucette said PayPal’s engagement and acceptance metrics are the most important indicators for investors to track.

“Engagement and acceptance expansion are very positive indicators of future growth, and we see the deliberate pace of margin expansion as the right strategy given high levels of investment,” Faucette wrote.

• EBAY Ratings And Price Targets: Credit Suisse has an Outperform rating and $315 target.
• RBC has an Outperform rating and $322 target.
• Rosenblatt has a Buy rating and $352 target.
• Raymond James has an Outperform rating and $340 target.
• Needham has a Hold rating.
• KeyBanc has an Overweight rating and $335 target.
• Morgan Stanley has an Overweight rating and $340 target.