PayPal Q2 Preview: An Investment Opportunity

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Author: Mike Smith

PayPal is a leading player in enabling digital payments and streamlining commerce for merchants and consumers. From online checkouts and risk management to foreign transfers and BNPL services, the organization covers the complete spectrum of digital payments.

After the market ended on August 2nd, PayPal revealed its Q2 earnings for 2022. 

 With deficient share performance and negative analyst projections, the issue remains whether the digital payments company’s shares will rebound.

Can PayPal Shares Rebound?

PayPal shares climbed as much as 13% in extended trading on Tuesday after the financial services business reported better-than-expected second-quarter results. While its results call, PayPal said it had entered into an information-sharing arrangement on value creation with Elliott Management.

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These quarterly results represent a 9.41 percent earnings surprise. The technology platform and digital payments company was predicted to earn $0.88 per share a quarter ago. Still, it earned $0.88, presenting no surprise.

The company has outperformed consensus EPS projections twice in the last four quarters.

Share Performance and Valuation of Stocks

PayPal shares have plummeted since the beginning of 2022, shedding more than half of their value and performing much below the broader market. However, purchasers have flocked in droves over the last month, with PYPL shares increasing in value by an astonishing 23 percent and outperforming the S&P 500’s.

Following the sale, the company’s valuation measures are much fairer. PayPal’s forward earnings multiple is at 33.9X, significantly below the five-year median of 49.1X and a fraction of the highs of 87.8X in 2021.

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Shares are trading at an 81 percent premium to the S&P 500.

Quarterly Rate

Over the last 60 days, analysts have been highly pessimistic about the upcoming quarter, with all five estimate changes going lower. Furthermore, the Zacks Consensus EPS Estimate of $0.85 is a depressing 26% fall in quarterly earnings year over year.

Despite that, PayPal’s top line looks much better: the $6.8 billion quarterly revenue projection is an 8.3 percent increase over the previous year’s revenues of $6.2 billion.

Quarterly Results and Market Reactions

The company has typically posted above-expected bottom-line performance, topping the Zacks Consensus EPS Estimate in seven of the previous ten quarters. On the other hand, PayPal announced earnings per share that aligned with forecasts in its most recent quarter. Quarterly sales figures have also been strong, with PayPal posting seven top-line beats in the previous ten reports.

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Moreover, the market hasn’t reacted kindly to the company’s recent bottom-line beats – following its past three EPS beats, shares have dropped by at least 5% each time.

Conclusion

PayPal shares have grown tremendously in the previous months, indicating that buyers are finally coming out to play. Furthermore, the company’s value levels are increased but are still far from where they have been recorded.

Analysts are worried about the upcoming quarter, with earnings likely to fall by double-digit. However, the top line is expected to expand significantly.

PayPal has consistently posted above-expected top and bottom-line earnings. Still, the market has not reacted favorably to the company’s last three bottom-line beats.

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