PayPal (PYPL) Increased Transaction Margin Dollars and Expense Reduction Should Lift Its Q3 Earnings Result

PayPal is expected to post quarterly earnings of $1.07 per share in its upcoming report, which represents a year-over-year change of -16.9%. Revenues are expected to be $7.86 billion, up 5.9% from the year-ago quarter.

In Q2, PayPal reported a total transaction volume of $403.9 billion, reflecting an 11% increase compared to the same period last year. The company’s net revenues rose by 8%, reaching $7.9 billion.

Its operating income Increased by 17% to $1.325 billion, with an operating margin of 16.8%, up by 1.26%. The Net Income also rose by 10% to $1.128 billion.

The operating cash flow also saw a dramatic rise of 863%, totaling $1.525 billion. The diluted earnings per share (EPS) increased by 17% to $1.08.

While the active accounts remained steady at 429 million in Q2, this is expected to improve as the transaction margin dollars increased

The number of transactions is expected to increase by more than 8%. In Q2, the Total Payment Volume (TPV) grew by 11% to $416.8 billion, with U.S. TPV rising by 11% to $265.5 billion and International TPV by 10% to $151.3 billion.

Total take rate edged up by 0.05% to 1.99%, while the transaction take rate increased by 0.06% to 1.8%. Transaction expense rate have also slightly decreased by 0.01% to 0.93%.

In Q2, Venmo, PayPal’s popular mobile payment service, processed over $73 billion in total payment volume, marking an 8% increase year-over-year. Venmo’s monthly active users grew by 5%, reaching nearly 62 million.

We should continue to see the payment volume processing increase as we have seen it gaining popularity among the younger consumer.

PayPal has made significant strides with its Fastlane feature, now available to U.S. merchants. Fastlane aims to streamline checkout processes and boost conversion rates.

The enhanced integration of Fastlane with Braintree, PayPal's payment processing platform, has been pivotal. Both Alex Chriss and CFO Jamie Miller emphasized Braintree and Fastlane during the earnings call, highlighting their critical role in attracting and retaining key partners.

Something that I would be looking out for PayPal is the NFC-based payment solutions, PayPal’s plan to leverage the newly mandated access to NFC chips on Apple devices in Europe. This move will enable PayPal to offer more NFC-based payment solutions, enhancing user convenience across the continent.

Based on 32 Wall Street analysts offering 12 month price targets for PayPal Holdings in the last 3 months. The average price target is $80.25 with a high forecast of $95.00 and a low forecast of $70.00. The average price target represents a -1.77% change from the last price of $81.70.

We might be able to see a upside move on PayPal stock price if the outlook guidance come in better than Q2, remember why PayPal stock price slump after the Q2 earnings is because PayPal give a little forecast to its 2024 growth.

Though we are seeing that MACD is showing a downside movement, but PYPL is trading above both short-term and long-term MA, and MTF is also giving a strong uptrend.

I believe we should be seeing an improvement in the Q3 earnings, and investors should be feeling positive ahead of the earnings, so it would be important to watch how PYPL trade on Monday (28Oct) before its earnings.

I might consider taking a position in PayPal.

It might be time for PayPal to continue its upside move after earnings, as the increased transaction margin dollars and how PayPal have managed to control their expenses, these factors should help PayPal to a better Q3 earnings.

I will be watching how PayPal trade today (28 Oct).

Appreciate if you could share your thoughts in the comment section whether you think PayPal would be able to come with better earnings.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.