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PayPal shares rose as much as 13% in extended trading Tuesday after the financial services company released stronger-than-expected second-quarter results. In its earnings materials, PayPal said it has entered into an information-sharing agreement on value creation with Elliott Management.
“As one of PayPal’s largest investors, with investments of approximately $2 billion, Elliott strongly believes in PayPal’s value proposition. PayPal has an unparalleled footprint and industry leader across its payments business, and has a right to win in the near and long term,” Jesse Cohn quotes The news comes a day after Elliott announced that she has become the largest investor in social network operator Pinterest.
Here’s what PayPal did in the second quarter:
- gains: 93 cents a share, adjusted, versus 86 cents a share, as expected by analysts, according to Refinitiv.
- he won: $6.81 billion, versus the $6.79 billion analysts had expected, according to Refinitiv.
Revenue grew 9% year-over-year, but the company posted a net loss of $341 million, compared to a profit of $1.18 billion in the year-ago quarter. At the end of the quarter, PayPal had 429 million active accounts, up 6% year over year but below the consensus of 432.8 million analysts polled by StreetAccount.
PayPal emphasized its progress in capital efficiency. It expects to cut costs by $900 million this year, and said annual benefits from the cuts and other changes will save at least $1.3 billion in 2023.
“We have a lot of bosses. We can be more productive,” chief analyst Dan Schulman said on a conference call.
PayPal has announced a new $15 billion share buyback program, four years after launching a $10 billion program.
Shulman said the company is pulling back in some areas, including stock trading, and will focus on in-store cards rather than exclusively QR codes. He said the company is exploring interoperability between PayPal and the payment app Venmo.
In conjunction with its agreement with Elliott Management, the company has “a commitment to work with Elliott Investment Management LP on a comprehensive evaluation of return on capital alternatives.” The Wall Street Journal reported in July that Elliott has taken up a position at PayPal.
“Our discussions focus on operational improvements, income-producing investments, and capital allocation, and they are aligned with our short- and long-term goals and plans,” Schulman said.
PayPal said it is seeking a replacement for Mark Brito, chief product officer for the past two years. Brito will retire later this year.
For the full year, PayPal said it expects $3.87 to $3.97 in adjusted earnings per share, up from the $3.81 to $3.93 range it provided in April. Analysts polled by Refinitiv expected $3.82 per share.
During the second quarter, primarily thanks to Venmo’s growth, PayPal added about 400,000 new active accounts, which the company calls NNAs. In the first quarter, PayPal reported 2.4 million NNAs, for a total of about 2.8 million in the first half of 2022. But PayPal still intends to add 10 million NNAs for the full year.
“However, as with all of our forecasts, NNA growth could be affected by broader economic factors, as channels that drive organic customer acquisition may be negatively affected by waning consumer sentiment and lower demand for discretionary goods,” said Shulman.
Despite the after-hours movement, PayPal shares are down 52% so far this year.
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