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PayPal faces the ‘burden of proof’ as it looks for a rebound

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PayPal Holdings Inc. kicked off 2022 with an outlook cut, which turned out to be a theme for the year. The company will look to start 2023 on better footing when it posts earnings Thursday afternoon.

Shares of PayPal
sank 55% in 2022 in what was the company’s worst annual performance on record amid a series of guidance resets, strategic shifts, and new competitive concerns. In light of competitive pressures on the company, Raymond James analyst John Davis said PayPal now has “the burden of proof” to show investors the sustainability of its market share.

While PayPal cut its forecast last year due to broader economic issues, some analysts have floated more PayPal-specific concerns in recent months. Namely, they’re worried about the strength of PayPal’s branded online checkout business as third-party data indicate that Apple Inc.’s
Apple Pay and others are gaining steam.

“Given new disclosures breaking out TPV [total payment volume] by segment and specifically branded checkout and Braintree/unbranded, our math suggests branded checkout likely lost share in 2022,” Davis wrote. “More importantly, we believe an initial 2023 revenue outlook below 7-8% would imply flat to negative growth for branded checkout.”

The FactSet consensus calls for PayPal to post 8.7% growth in 2023 revenue off of estimated 2022 levels. The consensus forecast also implies 8.5% revenue growth for 2022.

Bernstein analyst Harshita Rawat said she thinks that PayPal is likely to “modestly” miss consensus expectations with its 2023 revenue forecast, though she nonetheless sees a “positive” setup for the company ahead of its report.

“It does appear that buy-side expectations have moderated on 2023 revenues,” she wrote in a note to clients. While Rawat expected a forecast for something like 6% to 8% revenue growth, she noted that such an outlook would also provide “cushion for modest beat/raises.”

It’s “unlikely” that the company’s guidance will fall below 6% to 8%, in her view. She noted: “float alone will be 2-3% tailwind to revenue growth in 2023, e-commerce will likely grow in 2023, Braintree will add to growth (although will decelerate) and [comparisons] get easier for international.”

She also expected that “at the very least,” PayPal will stick to its expectations for $4.70 in 2023 adjusted earnings per share and 100 basis points or more of margin expansion. Additionally, the company could suggest that forecast is conservative.

PayPal recently announced that it would be laying off 7% of its staff, a move that Rawat said could help drive 2023 operating expenditures 5% to 10% below Wall Street expectations.

Read: PayPal to lay off 7% of employees as part of cost-cutting push

D.A. Davidson’s Chris Brendler also anticipates PayPal’s “better-than-expected expense control to not only support 4Q22, but set up 2023.”

He added that “after a string of disappointments, we think expectations are appropriately low into 4Q results and the initial 2023 guide.”

Morgan Stanley’s James Faucette thinks investors would respond well to more detail about what factors into PayPal management’s assumptions for e-commerce growth, which seem to bake in more conservatism than “most of the market.”

“How underlying e-commerce growth evolves is still a question mark, and we believe most potential incremental PYPL investors would like more confidence in a return to faster e-commerce growth,” he wrote.

PayPal’s fourth-quarter earnings report is due after Thursday’s closing bell.


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