PayPal (PYPL, Financial) surged 8% as it impressed the market with a strong Q2 performance. The payment giant exceeded top and bottom-line estimates, projected Q3 EPS above consensus, and raised its FY24 EPS outlook alongside a $1.0 billion increase in its repurchase program. This reflects early success from PYPL's transformation, focusing on high-quality, profitable growth. Although investments related to this transformation may result in lower volume and revenue growth in the latter half of 2024, the current results are promising.
- In Q2, total payment volume (TPV) increased by 11% year-over-year, leading to a 9% rise in currency-neutral revenue to $7.88 billion. Transaction margin dollars, indicating payment processing profitability, grew by 8%, marking the best performance since 2021. This healthy development led to PYPL's double-digit earnings beat, reversing a rare miss last quarter.
- PYPL is focusing on improving its branded checkout, enhancing SMB offerings, and attracting more users to Venmo. Early wins in these areas were observed during the quarter.
- Branded checkout profitability grew in Q2 after several tech innovations. A redesigned payment page increased conversion rates by 75-110 basis points.
- The PayPal Complete Payments Platform (PPCP), launched last year to extend its Braintree business to SMBs, showed positive progress. SMB volume on PPCP increased by 40% in the first half of 2024.
- Venmo's TPV rose by 8% year-over-year, with monthly active users growing by 5% to nearly 62 million. Venmo Debit Card and Pay With Venmo saw a 30% increase in monthly actives.
- Competition from big tech firms like Alphabet (GOOG, Financial) and Apple (AAPL, Financial) has been challenging, but PYPL noted no degradation in its market share over the past four years. Management stated that a shift from PayPal to Apple Pay buttons is not material to its business.
With positive momentum, PYPL expects solid numbers next quarter, targeting EPS growth in the high single digits and revenue growth in the mid-single digits. Additionally, PYPL raised its FY24 earnings forecast, projecting low to mid-teens growth year-over-year. CEO Alex Chriss, who took over in September, has made significant strides in reinvigorating PYPL. Despite the weak macroeconomic environment affecting online spending and transactions, PYPL's progress is encouraging and could mark the beginning of a meaningful comeback.
