While Q3 earnings season is slowly coming to a close, there are a few more big companies that still need to report their results. One of the more anticipated businesses was PayPal (NASDAQ: PYPL), which reported its third-quarter results after the bell on Tuesday. To the shock of many analysts, the company ended up falling short of its previous revenue targets, news that was completely unanticipated by most of Wall Street.
Overall revenue fell by 13% compared to last year, coming in at $6.18 billion for the quarter, compared to the $6.23 billion originally anticipated. On the other hand, earnings per share were slightly above expectations, coming in at $1.11 versus the anticipated $1.07. Total payment volume was still up over 26% from last year as well, rising to just over $310 billion.
Despite PayPal adding more than 13.3 million new active accounts, the revenue drop startled a lot of investors. To compensate, management revealed that PayPal is teaming up with Amazon (NASDAQ: AMZN) to let U.S. customers pay with Venmo. The app, which started supporting crypto back in April in addition to regular purchases, has seen volumes jump by over 36% since then.
The announcement also comes as PayPal’s relationship with eBay continues to splinter apart. The two companies split over six years ago, with the online auction marketplace trying to move sellers off PayPal and onto its own payment system. The new Amazon deal is seen as a way to mitigate the expected loss of volume from eBay.
Yet while shareholders might overlook a single disappointing quarter, management also updated its Q4 outlook, and it doesn’t look good. PayPal now expects to make $6.85 billion for the last quarter of the year. If so, that’s far below the $7.24 billion expected by Wall Street. The prospect of two bad quarters in a row, especially considering the vast majority of S&P 500 companies have beaten their Q3 targets so far, is a big disappointment to shareholders.
“Consumer confidence is weakened with the absence of stimulus payments. And with the economy reopening, more people may be likely to do their holiday shopping in-store,” said PayPal CEO Dan Schulman. When asked about whether PayPal will make any new acquisitions in the future, Schulman responded that “only a select few deals will meet our very strict financial, strategic and capital allocation criteria.”
Shares of PayPal crashed more than 10.5% following the news, the worst single-day drop in over 20 months. It’s been a choppy year for the payment processor, with shares zigzagging throughout most of 2021. As of right now, PayPal is down 11.4% year to date. Despite this, most Wall Street analysts remain bullish. Around 36 experts have a buy rating, while just five are neutral, and only two are bearish at the moment.
PayPal Company Profile
PayPal was spun off from eBay in 2015 and provides electronic payment solutions to merchants and consumers, with a focus on online transactions. The company had 377 million active accounts at the end of 2020, including 29 million merchant accounts. The company also owns Xoom, an international money transfer business, and Venmo, a person-to-person payment platform. – Warrior Trading News
