PayPal Shares Slump After Profit Guidance Clouds Q3 Earnings Beat

PayPal said it's on track to process nearly $1 billion in online payments this year, but modest near-term profit guidance clouded a solid third quarter earnings beat.

PayPal Holdings Inc.  (PYPL) - Get Report shares slumped lower Tuesday after the e-commerce payments group issued modest near-term profit guidance that clouded a third quarter surge in earnings and revenues.

PayPal said non-GAAP earnings for the three months ending in September rose 75% from last year to $1.07 per share as revenues surged 25% to $5.46 billion. Both figures topped Street forecasts, but a relatively conservative outlook for the fourth quarter, where the group sees profits rising in a range of between 17% and 18% and revenues rising by between 20% and 25%, sent shares lower in pre-market trading.

"We are battling a pandemic that shows no signs of slowing down. Economies around the world are still quite fragile and the next six to 12 months will be defined by the timing and amount of additional fiscal stimulus and progress toward a widespread and effective vaccine," CEO Dan Schulman told investors on a conference call late Monday. "And obviously, we sit here on the eve of one of the most important elections in our country's history".

"This is the landscape we face as we go into the last quarter of 2020. At the same time, PayPal is at an exciting and meaningful inflection point in our history.

PayPal shares were marked 5.7% lower in early trading Tuesday to change hands at $177.10 each, a move that would trim the stock's six-month gain to around 43%.

PayPal said it processed nearly $250 billion in online payments over the third quarter, a 36% jump from the same period last year, as consumers accelerated e-commerce transitions during the coronavirus pandemic.

Full-year non-GAAP earnings growth was forecast in the range of 27% to 28%, the company said, with revenues expected to rise between 20% and 21%.

"PayPal reported notable upside to our 3Q20 estimates and generally very strong demand metrics, although 4Q guidance reflected more near-term conservatism than many Street models," said JMP Securities analyst David Scharf. "In particular, it sounded like the tempered 4Q EPS outlook was related to: (i) a more significant eBay de-conversion headwind; (ii) greater concentration of investment spending in the quarter on recent new product launches; and (iii) a slower rebound in the travel and entertainment verticals than had been anticipated just three months earlier."

"It also sounded like management was generally adopting a more cautious near-term macro outlook given the unprecedented confluence of events that are overhanging spending patterns, from the trajectory of the pandemic to the outcome of the U.S. elections to potential civil unrest to the potential for additional federal stimulus," he added.