PayPal Stock Falls Despite Earnings Beat, Strong Outlook

PayPal Holdings (PYPL) stock is sinking Tuesday despite the payments company beating top- and bottom-line expectations for its fourth quarter and issuing a better-than-expected first-quarter and full-year outlook.

In the three months ending December 31, PayPal's revenue increased 4.2% year over year to $8.4 billion. Earnings per share (EPS) rose 4.4% from the year-ago period to $1.19.

"We set out at the beginning of 2024 to narrow our focus, improve execution, and reposition the business," said CEO Alex Chriss in a statement. "One year later, I'm proud that we've laid a strong foundation for long-term, profitable growth across the company's most important areas." Chriss cited improvements to branded checkout, peer-to-peer and Venmo as well as progress on the company's price-to-value strategy.

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The results topped analysts' expectations. Wall Street was anticipating revenue of $8.3 billion and earnings of $1.12 per share, according to CNBC.

PayPal's total payment volume increased 6.8% to $437.8 billion in the quarter, driven by active accounts increasing 2.1% to 434 million and payment transactions per active account increasing 3% to 60.6 on a trailing-12-month basis.

For the first quarter, PayPal said it expects to achieve earnings in the range of $1.15 to $1.17 per share, ahead of analysts' expectations for earnings of $1.13 per share. For the full year, it expects earnings of $4.95 to $5.10 per share, also ahead of Wall Street's forecast for earnings of $4.90 per share.

"The strong momentum we've created sets us up well for 2025, which is about scaling adoption," Chriss said.

Is PayPal stock a buy, sell or hold?

During the 12 months leading up to its earnings announcement the large-cap stock outperformed the S&P 500, rising 43.4% vs 22.5% for the index. And Wall Street remains bullish on the payments stock.

According to S&P Global Market Intelligence, the average analyst target price for PYPL stock is $96.25, representing upside of more than 17% from current levels. And the consensus recommendation is Buy.

Financial services firm Mizuho has an Outperform rating (equivalent to a Buy) and $100 price target on the financial stock.

"Expectations likely ran ahead of themselves," said Mizuho analyst Dan Dolev in response to the market's initial reaction to PayPal's earnings report. "We are not concerned," Dolev added, noting that PayPal’s "branded button has been consistently growing in line with its major merchant partners."

In a recent research note, Dolev said his analysis "shows that PYPL is growing in line with/faster than the weighted-average, share-adjusted growth of its major partners."

The analyst noted that stability in its branded segment as well as new initiatives including PayPal Everywhere, gradual migration of merchants to an updated checkout experience and Fastlane "makes the stock an attractive candidate for further re-rating in 2025."

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