PayPal Q3 preview: where next for PayPal stock?

In spite of pressure from declining consumer spending, PayPal is expected to produce positive earnings this Q3, fuelling optimism about its long-term prospects.

When will PayPal release Q3 earnings?

PayPal is scheduled to release Q3 earnings on November 3. There will be an Earnings Call at 14:30 Pacific Time, which is 21:30 GMT.

PayPal Q3 earnings consensus

PayPal is projected to achieve Q3 revenue of $6.8 billion, an increase of 10% year on year (YoY) at the current spot rate – and 12% on a currency-neutral basis. With adjusted diluted EPS expected in the range of 94-96 cents per share. At the upper end of 96 cents, that’s still down 14% YoY.

Adjusted operating income is predicted to come in at $1.3 billion, down 7.7% from Q3 2021.

PayPal Q3 earnings preview

Despite coming off of a positive Q2, when it raised its full-year adjusted EPS guidance, PayPal (PYPL) is still down 57% since the beginning of the year. That comes as PayPal has been struggling to return to normal after Covid caused a slowdown in services, and supply chain disruptions.

So, it seems difficult to get excited about the stock, but the company is expected to deliver some positive earnings and another profitable quarter. This quarter we’ve seen strong efforts to monetise the rest of PayPal’s portfolio, including a deal with Amazon to offer Venmo services, and growth in the company’s buy-now-pay-later (BNPL) solution.

Some of the more important figures to watch will be total payment volume (TPV), active customers and payment transactions per active account, as they give insights into the company’s growth.

• TPV is expected to come in at $343.2 billion, up 10.76%, most of which comes from the US market – which makes up 54% of revenue
• Active accounts are expected to be up 443 million, which would indicate a 4.14% growth from Q3 2021. Although new active accounts are estimated to only come in at 3.89 million, which would be down 70% YoY. It’s worth noting here that PayPal is currently purging
• Transactions per active user are forecast to be up 13% to 50 million

PayPal’s profitability, and current FY guidance, is reliant on its cost-control measures. The company has said it’s looking to incorporate $900 million of savings across transactional and non-transactional expenses. However, analyst predict that Q3 will see a rise in total operating expenses by 15% - with transactional expenses alone up by 68%.

There are also concerns that PayPal’s FY guidance could also be impacted by the reduction in consumer spending as fears of a recession grow – although Visa and Mastercard have reported recently that they haven’t felt the impact of this yet.

Still, now’s the time to keep an eye on PayPal’s FY guidance. Currently, the company expects to see revenues of $27.85 billion and GAAP EPS is expected to be between $1.52 and $1.62. PayPal also predicts it will see TPV of around $1.4 trillion with approximately 10 million Net New Actives (NNAs) added for FY22.

Where next for PayPal stock?

PayPal shares have found higher ground since hitting a five-year low back in July, but the trendline marking the series of lower-highs that can be traced back to February remains in play and continues to prevent the stock gaining further ground.

The stock needs to break above the trendline, which is currently roughly aligned with the 50-day moving average, to install confidence that it can move higher. This would allow it to recapture the 200-day moving average at $96.55 before the August peak of $103 comes back onto the radar. From here, a larger move could be on the cards toward the peak it hit before being derailed by the pandemic, in-line with the April-high.

The 49 brokers that cover PayPal believe the selloff this year has been overdone considering the average target price of $119.88 implies there is 44% potential upside from current levels.

The stock appears to have found some support around the $82 mark, in-line with the pandemic-induced low seen in March 2020, although it has temporarily dropped below here on occasion to suggest it won’t take much for it to fail. Any renewed pressure that pushes it below here would open the door back to the five-year low of $68.50.

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