Last week hasn’t been so great for Pay Pal (NASDAQ: PYPL). The fintech giant had previously experienced phenomenal growth throughout the pandemic, but the second quarter results it released on July 28 proved insufficient as they fell short of analysts’ expectations for revenue and failed. offered disappointing forecasts for the third quarter.
As a result of this report, the stock price has fallen nearly 12% at the time of writing. But investors should see this as an opportunity to grab bearish stocks – the last quarter was only a slight setback for a company that still has huge growth potential.
Was it really a less than stellar neighborhood?
By many indicators, the second quarter demonstrated the continued strength of the company. Total Payments Volume (POS) of $ 311 billion grew 40% year-over-year, and it added 11.4 million new net asset accounts, bringing its total to over 400 million. That’s more than all the people in the United States and Canada.
Non-GAAP earnings per share rose only 8% to $ 1.15, but it still exceeds internal forecast by $ 1.12. And revenue increased 17% on a currency neutral basis to $ 6.24 billion. That missed forecast of $ 6.25 billion, but as revenue grows, it’s not too shabby. Venmo was a star during the quarter, with POS growth of 58% and revenues of nearly 70%.
PayPal’s results were impacted by eBaymigrating out of its platform. The POS on the platform connected to eBay transactions decreased by 37% and represented less than 4% of the total volume, and management expects it to end the year at nearly 2.5% of the total volume. But not counting eBay, volume increased 48% and revenue increased 32%. The growth in merchant services far exceeds that of eBay, with a compound annual growth rate of 29% over the past three years, compared to a CAGR of 1.5% for eBay. As the e-commerce site’s shift away from PayPal continues, PayPal expects stronger results, and despite weaker-than-expected second quarter earnings, it maintains its guidance for the full year. EBay is expected to exit the platform by the end of the third quarter, and fourth quarter revenue is expected to reflect that, with higher growth expected. The results are expected to level out in 2022 once the migration is complete.
A solid company with a disproportionate opportunity
PayPal has certainly been boosted by the pandemic, but the underlying growth trends in e-commerce and digital payments also remain strong, and as PayPal and its peers expand their range of products and services, there are good reasons to believe that they will continue to gain ground.
“PayPal serves as an essential and trusted platform for consumers and merchants, in all forms of commerce, payments and basic financial services,” said CEO Dan Schulman. This is a broad indicator of the company’s strategy to transform itself into a one-stop shop for financial services. It is launching its awesome app, intended to provide these services, and adding features over the next few months as it rolls out. The app is powered by artificial intelligence to provide a personalized experience for each user, and it could be a game-changer for PayPal as well as financial services in general. Investing in the super app increased expenses and reduced some profit, which contributed to the small increase in net income.
While investors may prefer to see high growth and beating revenues each quarter, it is necessary to recognize that even the best companies underperform from time to time. This can happen when they invest heavily in growth, and PayPal is a prime example.
There is little reason to be concerned about PayPal based on its second quarter results, even though the market is behaving differently. But its now lower stock price opens up a great opportunity for investors looking to open or add a position in the company.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.