After seeing its shares lose nearly two-thirds of their value in the past year, PayPal Holdings Inc delivered a profit-heavy report on Tuesday, announcing a new CFO, buy-back authorization program and cost savings, while also confirming that activists at Elliott Management Inc. Corp. a stake in the company.
Additionally, the company beat expectations with its second-quarter financial results while providing a mixed update of full-year guidance.
It jumped 12% in after-hours trading Tuesday, after jumping for its best day in two years last week amid reports that Elliott took a stake in the business. Elliott confirmed his involvement in Tuesday’s report, just as the activist investor did on Monday afternoon with struggling Pinterest Inc, PINS,
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“As one of PayPal’s largest investors, with approximately $2 billion in investments, Elliott believes strongly in PayPal’s value proposition,” Elliott managing partner Jesse Cohen said in a statement included in PayPal’s release. “PayPal has an unparalleled footprint and industry leader across its payments business, and it has the right to win in the near and long term.”
He added that the PayPal report “highlights a number of steps that have been taken and are being initiated to help realize a significant opportunity” in the business.
The company presents to Electronic Arts Inc. EA,
Chief Financial Officer Blake Jorgensen to work in the same position at PayPal. He replaced John Rainey, who resigned earlier this year to become Walmart Inc.’s WMT. ,
Chief Financial Officer.
Even before Jorgensen joined the company on Wednesday, PayPal executives announced a variety of financial initiatives including a new $15 billion share buyback license and a cost-saving program that they expect to achieve in savings of $900 million in the current fiscal year and $1.3 billion dollars in savings next year. Executives are targeting operating margin expansion for 2023.
The leadership team will get additional change in the coming months as PayPal announced that Chief Product Officer Mark Britto plans to retire at the end of the year, and the search for a replacement continues.
All recent moves are “positive,” according to Mizuho analyst Dan Dolev, who said PayPal’s “cost basis has been too high, and it needs to return capital to shareholders.”
The main question asked in PayPal’s report was whether the company would again cut its full-year revenue guidance after a series of cuts earlier this year. Executives ended up lowering their forecasts and are now modeling about 10% growth on a spot basis, versus earlier forecasts of 11% to 13% growth. They are also modeling around 11% growth on a currency-neutral basis, which is at the lower end of the company’s previous range.
Executives also expect about $3.87 to $3.97 in adjusted earnings per share for the full year. The company’s previous forecast was for $3.81 to $3.93 in adjusted EPS.
For the fourth quarter, the company reported a net loss of $341 million, or 29 cents a share, while it reported net income of $1.18 billion, or $1.00 a share, in the prior quarter. The loss in the fourth quarter reflected negative effects from strategic investment losses and tax charges related to acquired intellectual property.
On an adjusted basis, PayPal earned 93 cents per share, down from $1.15 per share a year ago but higher than the FactSet consensus, which was 87 cents per share.
PayPal’s revenue rose to $6.81 billion from $6.24 billion, while analysts were modeling at $6.78 billion.
The company generated $339.8 billion in total payment volume, or the value of transactions processed through its platform, up from $311.0 billion in the previous quarter. Analysts expected $342.8 billion in TPV.
PayPal had 429 million active accounts as of the second quarter, essentially flat with the first quarter total but up from 403 million active accounts in the second quarter of 2021. Executives said earlier this year that they will become less focused on absolute growth Users like they have sought to monetize better than higher-value PayPal users.
For the third quarter, PayPal’s management team expects net revenue growth of 10% or 12% on a currency neutral basis. The forecast would equate to about $6.80 billion, while analysts tracked by FactSet were looking for $6.78 billion.
PayPal executives also expected 94 cents to 96 cents in adjusted earnings per share for the third quarter, while analysts had been expecting 95 cents.
The company is participating in an “Information Sharing Agreement” with Elliott and will continue to collaborate across a range of value-creating opportunities, according to the release.