Shares in PayPal Credits (PYPL) emerged on Wednesday after the company said it was ready to work with activist investor Elliott Management. The e-commerce company added $15 billion to its PYPL share buyback program when it reported mixed financial results for the June quarter.
PayPal released its June quarter results on Tuesday. Second-quarter earnings for PayPal shares fell from a year earlier, but topped views as total payments volume missed estimates.
Additionally, PayPal confirmed that hedge fund Elliott Management had taken a $2 billion stake in the company.
Stock PYPL: Elliott Management drives cost reduction
On the earnings call with analysts, PayPal said the company and Elliott Management “are aligned on the common goal of maximizing shareholder value, with the initial focus being improved profitability and increase in the return on capital”. PayPal has entered into an information sharing agreement with Elliott Management.
PayPal expects to save $900 million in cost-cutting measures in 2022 and $1.3 billion in 2023.
PayPal, based in San Jose, Calif., has announced the appointment of Blake Jorgenson as chief financial officer. Jorgenson had been executive vice president of special projects at a video game company electronic arts (EA).
“With a more reasonable high-level forecast, a well-regarded new CFO and Elliott helping to manage cost-cutting initiatives/capital allocation, PYPL stock finally appears to be on the road to recovery,” it said. Deutsche Bank analyst Bryan Keane in a note to clients. .
Commitment to margin expansion
At Susquehanna, analyst James Friedman said in his report to clients, “From a spend discipline perspective, PayPal is committed to growing margins in the fourth quarters of 2022 and 2023. We believe these initiatives will support the long-term profit capacity.”
PYPL stock jumped 10.6% near 99 in morning trading on the stock market today.
As e-commerce boomed during the coronavirus pandemic, PayPal shares soared. But PayPal stock had plunged about 71% from an all-time high of 310.16 on July 26, 2021.
Some analysts are calling for caution over a potential PayPal reversal.
“We are somewhat surprised by the 12% move in stocks, as estimates for 2023 are largely unchanged,” Bank of America analyst Jason Kupferberg said in a report. “A second quarter in a row is encouraging. (But) in our view, visibility into longer-term normalized earnings capacity remains limited and uncertainty persists around PYPL’s strategic pivot.”
PayPal’s profit for the quarter ended June 30 was 93 cents per share, down 19% from a year earlier. The e-commerce company said its revenue rose 10% to $6.8 billion.
Analysts had expected PayPal earnings of 87 cents per share on revenue of $6.78 billion. A year earlier, PayPal earned $1.15 per share on sales of $6.24 billion.
PayPal Stock: light payment volume
In the second quarter, the total volume of payments processed by merchant customers increased by 13% to $339.8 billion. Analysts had forecast a total payment volume of $342.83 billion.
For the current quarter ending September, PayPal was forecasting EPS of 95 cents, in line with estimates. PayPal forecasts revenue of $6.8 billion, below estimates of $7.02 billion.
“Defying the bears who were anticipating further guidance cuts, management left its 2022 guidance largely unchanged, adjusting revenue growth to the bottom of the range (+11%), but increasing EPS slightly,” it said. MoffettNathanson analyst Lisa Ellis said in a report. .
At UBS, analyst Rayna Kumar said in a note, “With the potential to generate more than $5 billion in free cash flow this year, PayPal stock looks undervalued.”
PayPal Share Buyback Program
According to Ben Silverman, director of research at VerityData, PayPal’s takeover announcement should be approached with caution.
In an email, he said PayPal expects 2022 buybacks to total around $4 billion. He said PayPal repurchased $2.25 billion worth of stock in the first half of 2022. As a result, he said repurchases could slow in the second half of the year.
“The company’s outstanding shares have only been reduced by about 1.4% by buybacks over the past 3.5 years,” he added.
PayPal stock holds a relative strength rating of just 13 out of the best possible 99, according to IBD Stock Checkup.
former parent eBay (EBAY), which created PayPal in 2015, transferred its payment processing from PayPal to Dutch company Adyen.
If you are new to IBD, consider taking a look at its stock trading system and CAN SLIM basics. Recognizing chart patterns for issues like PYPL stocks is one of the keys to investing guidelines.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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