PayPal disappoints on margins in Q2: ‘I want to be a buyer here’

Shares of PayPal Holdings Inc (NASDAQ: PYPL) slipped roughly 8.0% in extended trading today even though the online payments company topped analysts’ estimates in its fiscal Q2.

Why are PayPal shares down in after-hours?

What’s driving weakness after-hours is the adjusted operating margin that came in shy of the company’s previous guidance due to the shortfall in its credit portfolio.

PayPal said its operating margin stood at 21.4% on an adjusted basis in the second quarter versus its earlier outlook for 22%. Still, Jeff Kilburg of KKM Financial told CNBC ahead of the earnings print:

I want to be a buyer here of PayPal. Just two years ago, its price was above $300. So, it’s dramatic to see that big of a move. I think the technicals are lining up. It makes sense to take this for a trade.

PayPal stock is now down nearly 10% versus the start of 2023.

PayPal’s outlook for the current quarter

PayPal now forecasts its adjusted per-share earnings to fall between $1.22 and $1.24 in the current quarter on $7.4 billion in revenue, as per the press release.

In comparison, analysts were at $1.21 per share and $7.3 billion, respectively. According to Kilburg:

You have to understand who owns this stock. Who’s betting this stock is going to come back is institutions. It’s got a very high concentration of institutional ownership near 75%.

Note that the financial technology behemoth remains committed to improving its operating margin by 100 basis points and earn $4.95 a share this year. Wall Street currently rates PayPal stock at “overweight” on average.

Notable figures in PayPal’s Q2 report

• Earned $1.03 billion that translates to 92 cents a share
• Had $341 million of loss (29 cents a share) last year
• Adjusted EPS printed at $1.16 as per the press release
• Revenue jumped 7.0% year-on-year to $7.29 billion
• Consensus was $1.15 a share on $7.27 billion revenue

Total payment volume in the recently concluded quarter was $376.5 billion – also ahead of expectations. Kilburg added in his interview with CNBC:

X.com formerly known as Twitter was the precursor to PayPal. So, there’s a lot of synergy. There’s a lot of upside if Mr Elon Musk decides to get a little creative about this $84 billion company.