In Spite of Paypal's Earnings Beat, Another Metric is Weighing on Its Stock Price

PayPal Holdings Inc. exceeded earnings expectations for the most recent quarter, benefiting from strong momentum in its Venmo business and unveiling a fresh share-repurchase initiative.

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Despite this, the company’s growth in branded checkout—its more lucrative segment compared to unbranded transactions—fell short of bullish investor hopes. PayPal reported a 6% increase in total payment volume for branded checkout, driven by success with large enterprises and accelerating U.S. expansion. However, Mizuho analyst Dan Dolev noted that buy-side investors were expecting a stronger 7% to 8% growth.

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Dolev pointed out that investor expectations may have been overly optimistic, particularly after Visa recently highlighted robust e-commerce trends. Still, he expressed little concern, noting that PayPal’s branded checkout button has continued to grow in line with its key merchant partners.

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Shares of PayPal dropped 6% in premarket trading on Tuesday.

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For the fourth quarter, PayPal reported adjusted earnings per share of $1.19, surpassing the $1.12 consensus estimate from analysts polled by FactSet. The company credited its strong performance to a sharper focus on priority areas and efforts to enhance operational efficiency.

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However, PayPal’s operating margin declined, breaking a four-quarter streak of expansion.

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The company’s revenue climbed 4% year-over-year to $8.37 billion, exceeding the FactSet consensus estimate of $8.26 billion. Total payment volume rose 7% to $437.8 billion, roughly in line with expectations.

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“Our improvements in branded checkout, peer-to-peer payments, and Venmo, along with progress on our price-to-value strategy, are starting to reflect in our results,” said CEO Alex Chriss in a statement.

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PayPal reported a 7% rise in transaction-margin dollars, which reached $3.93 billion. This key metric measures the profitability of the company’s payment volume.

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The company also saw an increase of 3 million active accounts during the quarter, bringing the total to 434 million. Meanwhile, Venmo experienced a 4% uptick in monthly active users.

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However, the total number of payment transactions fell 3%, as PayPal scaled back its focus on unbranded Braintree transactions, which generate lower profitability.

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Looking ahead to the first quarter, PayPal expects adjusted earnings per share between $1.15 and $1.17, alongside transaction-margin dollars of $3.60 billion to $3.65 billion, reflecting 4% to 5% growth. The earnings guidance surpasses the FactSet consensus of $1.13, though FactSet does not track transaction-margin dollars.

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For the full year, PayPal projects adjusted EPS between $4.95 and $5.10, compared to the $4.90 analyst consensus. The company also anticipates transaction-margin dollars of $15.2 billion to $15.4 billion, factoring in a $150 million negative impact from lower interest income on customer balances.

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In addition, PayPal announced a new $15 billion share-repurchase program.

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