PayPal Holdings Inc.’s cost-savings story began to play out in the most recent quarter, as the company beat expectations and executives raised their full-year bottom line guidance, though they also lowered their 2022 revenue guidance given the “rough” revenue guidance macro environment.”
The stock fell more than 7% in after-hours trading following the earnings release.
PayPal PYPL, -3.65% Executives are implementing a cost savings program that executives outlined in the previous earnings report. PayPal reported adjusted earnings of $1.08 per share last quarter, down from $1.11 per share a year ago but ahead of the FactSet consensus, which was 96 cents per share. Executives are now modeling $4.07 per share to $4.09 per share for full-year adjusted earnings, up from the previous guidance of $3.87 per share to $3.97 per share.
“We’re going against everything we can control … and carefully preparing for a harsh macro environment,” Chief Executive Dan Schulman told MarketWatch.
Although PayPal executives are more optimistic about 2022 earnings targets, they have trimmed their revenue guidance and now expect currency-neutral growth of 10%, compared to the previous guidance of 11% growth. Management lowered expectations on a number of guidance metrics during the year.
Schulman noted that PayPal is “noting a pullback in discretionary goods that consumers spend money on,” leading him and the executive team to believe there needs to be a “prudent” revenue outlook for the fourth quarter.
Revenue for the third quarter rose to $6.85 billion from $6.18 billion, while analysts had expected $6.81 billion. PayPal’s total payment volume grew to $337 billion from $310 billion last year. Venmo volume was $63.6 billion.
Shares are down nearly 60% this year as the S&P 500 index SPX fell -1.06%, down 21.1%.
Read: Amazon launches Venmo payment option
The company saw engagement surge as transactions per active account grew 13% to 50.1 over a 12-month period. PayPal added 2.9 million new active accounts in the third quarter, bringing the total to 432 million. The FactSet consensus was 432.9 million active accounts.
Earlier this year, PayPal began shifting its focus more toward generating engagement with existing users than attracting and retaining less-active customers.
Schulman explained that the company’s digital wallet has helped drive improved engagement trends, as PayPal sees twice as much engagement from those who use the app as those who don’t.
PayPal executives announced several ongoing initiatives with Apple Inc. Additionally, PayPal and Venmo debit and credit cards will be eligible for inclusion in Apple Wallet next year. PayPal also plans to add Apple Pay as a payment option to its unbranded checkout platform.
These developments mark a “significant step forward,” Schulman said.
See more: Apple will allow merchants to accept in-person payments with just an iPhone
Executives gave a first look at expectations for 2023 in an investor presentation Thursday, targeting adjusted EPS growth of at least 15% and an operating margin increase of at least 100 basis points.
Schulman said EPS growth in the target range would place PayPal in the top quartile of the S&P 500 components of the metric.