PayPal Underwhelms in Q2

Update3 years ago
PayPal reported a solid Q2 with better-than-expected revenue of $3.86B (vs. analysts' estimate of $3.81B) and EPS of $0.58 (vs. estimates of $0.57).
Remember: the business generates revenue from transaction volume on PayPal's sites, multiplied by its "take rate" on those transactions (i.e. how much PYPL takes out of each dollar that is transacted on
In Q2, PayPal's transactions grew a robust +28% annually to 2.327B, better than expected. However, its transaction take rate was 2.38%, lighter than analysts' estimate for 2.40%. As a result, PayPal's transaction revenue was slightly lower than the market expected.
Investors were clearly a bit underwhelmed with the results when compared to their very high expectations (with the stock up +24% YTD heading into today). The combination of the declining take rate and already-elevated expectations drove PYPL down 3% after-hours.
Going forward, management provided roughly in-line guidance for a revenue and earnings perspective for Q3 and full year 2018. Also, they announced a new $10B stock buyback authorization, which should help accelerate EPS growth in coming quarters.
Overall, this quarter doesn't change our fundamental view on the business. As they say, "one quarter doesn't make a year." One quarter of mostly in-line metrics doesn't suggest a fundamental weakening in PYPL's moat, in our view.
And at a higher level, it was an important strategic quarter for PayPal as the company announced four acquisitions that advance its merchant value proposition and geographic reach. PayPal's decision to become an open platform is increasing its value proposition to both consumers and merchants.
Hedge fund manager Dan Loeb sees PYPL's stock rising to $125+ within 18 months as transaction volumes continue to grow and as take rate stabilizes, driving higher EPS than the market expects.
As of this writing, PYPL was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

Become a Titan investor today.

Investment articles and resources
Become the smartest investor you've ever been through straightforward, easy-to-read investment articles.
Titan Global Capital Management USA, Inc ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept our Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. Any historical returns, expected returns [or probability projections] are hypothetical in nature and may not reflect actual future performance. Account holdings are for illustrative purposes only and are not investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.
Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
© Copyright 2022 Titan Global Capital Management USA, Inc. All Rights Reserved.