PayPal Raises 2024 Earnings For Second Time As Spending Holds, Margins Improve

PayPal Inc. (PYPL) on Tuesday raised its adjusted full-year earnings forecast for a second time, betting on resilient consumer spending in the coming back-to-school and holiday shopping seasons, while cost-cutting measures improved margins.

Shares of the payments giant rose 4% in premarket trading after the results.

American consumers have been resilient despite rising interest rates for longer than they’ve been digging into their pockets, and even as rival payments companies have voiced concerns about increasing pressure on lower-income earners, the sector has posted broadly steady growth in transaction volumes this year.

Meanwhile, under CEO Alex Kris, the company has focused on improving operating margins through restructuring, aggressive cost reductions and staff cuts. In January, the company announced plans to cut about 2,500 jobs, or 9% of its global workforce.

PayPal now expects “low to mid-single digit” adjusted earnings growth in 2024, compared with its April forecast of “mid- to high-single digit” growth.

Gross payment volumes rose 11% to $416.81 billion in the second quarter, while net revenues rose 9% to $7.89 billion on a foreign currency-neutral basis.

PayPal’s operating margins rose 231 basis points on an adjusted basis, to 18.5% in the quarter. Its margins have been a major concern for investors over the past year, after growth slowed following the pandemic.

Some concerns were eased by the fact that total payment volumes in branded payments grew about 6% in the second quarter. PayPal said branded payments, Braintree and Venmo contributed to the highest dollar transaction margin growth — a key measure of the profitability of its core business — since 2021.

Transaction margins increased 8% in the quarter, to $3.61 billion.

The entry of tech giants like Apple (AAPL) and Google parent Alphabet (GOOG) into the digital payments space in recent years has increased competition, hurting PayPal's market share.

As a result, while PayPal's unbranded business has grown, weakness in its branded businesses like Venmo has weighed on the stock.

Shortly after being appointed CEO last year, Chris said he expected to grow revenue beyond pure transactional volumes and pledged to make fintech more nimble.

PayPal also expects third-quarter revenue to grow by a “mid-single-digit” rate, which is below Wall Street's expectations of a 7.5% increase, according to LSEG data.

Its adjusted earnings per share rose to $1.19 in the three months ended June 30, compared with 87 cents a year earlier.

(Reporting by Manya Saini in Bengaluru; Editing by Pooja Desai)