PayPal Q2 earnings to reflect competitive landscape, new CEO’s innovations

With PayPal Holdings (NASDAQ:PYPL) reporting Q2 earnings less than a year after Alex Chriss took over as CEO from co-founder Dan Schulman, investors will be keen to see whether he has made progress in reigniting earnings growth at the payment tech company.

The company is expected to earn adjusted EPS of $0.99 in Q2, when it reports before the opening bell on Tuesday, down from $1.08 in Q1.

With the first half of the year over, PayPal (PYPL) should have a better idea of how 2024 is shaping up. Wall Street analysts are expecting the company to increase its outlook for 2024. The average analyst estimate for full-year adjusted EPS now stands at $4.16, compared with the company’s guidance of ~$3.83 in April. Still, the consensus estimate has dropped 13% in the past three months and 25% over the past six months.

For Q2 2024, total payment volume is expected to be $418.1B, according to the Visible Alpha consensus, up from $403.9B in the prior quarter and $376.5B a year ago.

Total active accounts should reach 427M, according to the Visible Alpha estimate, flat with Q1 and down from 431M in last year’s Q2.

The average analyst estimate for total operating expenses of $6.24B, according to Visible Alpha, compares with $6.53B in the previous quarter and $6.15B a year ago.

Wall Street analysts have been mixed on the stock, with William Blair and PhillipCapital downgrading the stock since its Q1 results. However, Susquehanna and Mizuho upgraded PayPal. Overall, Wall Street tilts bullish, with an average rating of Buy (15 Strong Buy, 8 Buy, 25 Hold). The average SA Analyst rating is also Buy (14 Strong Buy, 15 Buy, 7 Hold, 1 Sell).

The SA Quant rating, though, is on the sidelines with a Hold rating.

Much of the narrative regarding PayPal (PYPL) since Q1 has focus on ramped up competition from new features that Apple Pay is rolling out. For example, William Blair’s Cristopher Kennedy cited intensifying competition in downgrading the stock.

Susquehanna Financial analyst James Friedman, though, pointed to consumer-facing improvements increasing the value proposition for PYPL’s branded checkout. Early this year, the company rolled out new enhancements to revive growth, including features that apply AI to PayPal’s data, including a faster checkout.

SA Analyst Noah’s Arc Capital Management is optimistic that PayPal’s (PYPL) Q2 will exceed expectations. For one thing, Apple (AAPL) lost an antitrust case in Europe, a verdict that requires the tech giant to open up its near-field communications technology to third-party payment providers, such as PayPal. “In the US, if they win a similar lawsuit, expect Affirm (and Apple’s) moat in this space to dissipate,” Noah’s Arc said.

Wall Street analysts have been lowering their expectations for Q2 earnings, with the average estimate falling ~11% in the past three months and 25% in the past six months. SA Analyst Pearl Gray Equity and Research attributes the series of downward revisions to a “crowding” behavior, “which, whether for right or wrong, might’ve skewed estimates.”

The analyst also notes PayPal’s Beneish M-Score, a measure that rates whether a company applies conservative or aggressive earnings recognition practices. PYPL’s rating is below -1.78, suggesting conservative practices, “meaning potential surprises from past aggressive accounting practices are unlikely for Q2,” Pearl Gray Equity said.