PayPal Holdings, Inc. (NASDAQ: PYPL) reported solid third-quarter results this Thursday, but the company’s management once again lowered expectations for coming quarters.
The total payment volume grew 14% in Q3
PayPal reported solid third-quarter results this Thursday; total revenue has increased by 10.8% Y/Y to $6.85 billion, slightly above expectations, while the earnings per share were $1.08 (beats by $0.12).
The total payment volume grew 14% to $337 billion in the third quarter of the 2022 fiscal year compared with the same period in 2021, and the company added 2.9 million new active accounts.
Negative information is that the company’s management once again lowered expectations for coming quarters and reported that revenues and net new active accounts in 2022 could fall below its previous guidance.
PayPal now expects between 8 million and 10 million net new active accounts in the 2022 fiscal year vs. its previous guidance of 10 million, while the revenue should be 27.53 billion vs. the prior outlook of $27.85 billion.
Despite this, Trust Securities analyst Andrew Jeffrey said that he expects PayPal’s revenue to grow faster than Amazon.com, Inc. (NASDAQ: AMZN) but to lag Visa, Inc. (NYSE: V)and Mastercard Incorporated (NYSE: MA) projected low-to-mid teens percentage growth. Trust Securities analyst Andrew Jeffrey added:
Over time we think PayPal will struggle to grow faster than eComm, given its significant off-Amazon share.
PayPal’s business model is relatively resilient versus recessions, as demand for payment services isn’t overly cyclical.
The company continues to have strong cash flow, and it is important to say that PayPal generated $1.77 billion in free cash flow in the third quarter on revenues of $6.85 billion. This calculates to a free cash flow margin of 26%, which is 7% higher than in the previous quarter.
With a market capitalization of $85.71 billion, PayPal is reasonably valued and compared to Mastercard, PayPal is cheaper on a price-to-sales basis.
According price-to-sales ratio (market capitalization/revenues), PayPal shares are trading at 3.17, which is several times lower than the price-to-sales ratio of Mastercard, which is trading at a P/S of 14.15.
It is also important to mention that Visa trades at more than thirteen this year’s sales, and even in a highly uncertain macro and regulatory environment, shares of PayPal may be a good choice.
Technical analysis
PayPal shares have weakened more than 60% after reaching the highest level in 2022 of $196.10 on January 04, and the risk of further decline still persists.
The price has moved again below the 10-day moving average, indicating that the bottom may still not be reached.
The current support level stands at $70, while $90 represents the first resistance level. If the price falls below $70, it would be a “sell” signal, and we have the open way to $65.
On the other side, if the price jumps above $90, the next target could be resistance that stands at $100.
Summary
This Thursday, PayPal reported solid third-quarter results, but the company’s management again lowered expectations for coming quarters. The company continues to have strong cash flow, and even in a highly uncertain macro and regulatory environment, shares of PayPal may be a good choice.