PayPal Q1 earnings preview: Where next for PYPL stock?

When will PayPal report Q1 2022 earnings?

PayPal is scheduled to release first quarter earnings after US markets close on Wednesday April 27.

What are analysts expecting from PayPal’s Q1 earnings?

Per Zacks, analysts are expecting PayPal to report $0.89 in EPS on $6.4B in revenue.

PayPal Q1 2022 earnings preview

The tightening macroeconomic environment has been a headwind for many pandemic-era darling stocks, and PayPal has undoubtedly been one of the most prominent names to struggle with multiple compression as traders shifted their focus from expensive, fast-growing, digitally-enabled names to cheaper, more profitable shares tied to the so-called “real economy.”

On a more granular level, PayPal’s earnings are expected to decline by nearly -30% year-over-year as consumer trends definitively turn against the fintech giant. In recent months, consumers have shifted more toward purchasing experiences over goods, shopping in person vs. online, and reining in spending as a result of inflationary pressures, all of which represent headwinds for PayPal.

In another blow for bulls (and likely one of the big catalysts for the sharp selloff its stock has seen in the last two weeks), PayPal’s CFO, John Rainey, announced that he plans to leave the company for a role at Walmart next month. According to Morgan Stanley analyst James Faucette, "John Rainey's departure may be perceived as negative signaling. (It) could potentially refresh fears around the company's ability to sustain above-market growth and reach financial targets.” Investors will be keen to learn about Rainey’s succession plan and any reassurance that the company can provide.

On the bright side for bulls, PayPal is currently trading its lowest price-to-earnings ratio on record (and lower than that of the Nasdaq 100 index), suggesting that the beaten-down shares may now offer a bargain if growth resumes.

Finally, PayPal continues to battle it with Block / Square for penetration into the cryptoasset space. Both payment companies are seeking to make it easy for their generally young users to purchase cryptocurrencies without opening an entirely new crypto brokerage account. With the more traditional payments business struggling, bulls will be hoping to see continued adoption of its cryptoasset offering.

Where next for PYPL stock?

There are no two ways about it: PayPal’s stock has been getting clobbered for a full nine months now. Since peaking near $310 in late July, PYPL has now fallen by more than -70% to trade below $90 as we go to press. Notably, this is effectively the stock’s lowest closing price during the pandemic and back to a price first reached in January 2018. Prices are down by -30% in the past three weeks alone!

Given the abysmal price action, it’s clear that expectations are exceedingly low heading into this week’s earnings report. The pair is deeply oversold and showing a potential bullish divergence with its 14-day RSI indicator, suggesting the potential for a sharp bounce if earnings surprise to the upside. That said, the 50-day EMA near $115 will likely cap any earnings-driven bounce, as it has since September. Meanwhile, a break below $82 on a disappointing report could quickly expose the Q4 2018 lows in the mid-$70s next.

Ultimately, it will take an improvement in the underlying macroeconomic backdrop for this pandemic-era darling to regain its sparkle.

Source: TradingView, StoneX

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