PayPal stock price forecast ahead of earnings: buy, sell, hold?

PayPal (NASDAQ: PYPL) stock price will be in the spotlight this week as the bruised giant publishes its financial results. I believe that these earnings will be so important because they will highlight the company’s progress in improving its margins and competitive advantage. This explains why the stock has been a bit volatile recently. After surging to $68.25 on June 22nd, the stock pulled back to $58.88 and then rebounded to $64.

PayPal earnings ahead

PayPal, the fallen fintech giant will publish its financial results on Thursday. These results will come at a time when there is a sense of optimism in the fintech industry. On Monday, SoFi, a company that provides a suite of financial services, surged by over 20% after it reported its first quarterly profit ever.

Further, many fintech companies that struggled a while back have rebounded. For example, Affirm shares have surged by more than 150% in the past 12 months as the company has demonstrated strong revenue growth.

While the PayPal stock price has risen by over 27% from its 2023 lows, it has underperformed other fintech companies. It has also lost almost 80% of its value from its pandemic high as growth in its ecosystem slows.

Investors will watch three key things in the upcoming PayPal earnings report. First, they will look at the company’s margin growth. As shown in the chart below, PayPal’s EBITDA margin has been in a freefall in the past few years. It peaked at 24.9% in 2021 and then retreated to 19.8% in the last quarter. Worse, the gross margin peaked at 49.67% in 2021 to 38.97%.

PayPal EBITDA, operating, and gross margins

Similarly, operating margin slipped from 19.25% in 2021 to 16.19%. In the last quarterly result, PayPal committed to improving its margins, especially in its unbranded solution. Therefore, traders and investors will want to see that the company is improving on that. 

PayPal’s unbranded margins have thinned because of its rising competition from companies like Stripe, Google, and Apple. It is also seeing robust competition from BNPL companies like Affirm, Zip, and AfterPay.

PayPal growth 

The second thing that the market will watch is its revenue and user growth. As I wrote in my last article on PayPal, its growth has slowed in the past few years. Its active customers have declined sharply in the past few quarters but they remain above 400 million.

PayPal’s revenue growth has also stalled. Its third-quarter revenue growth came in at 8.36%, which is much lower than its historical average. Therefore, PayPal share price will react to its revenue growth, which is not expected to be strong. It guided a revenue growth of between 7% and 8% and analysts expect that its revenue estimate will be $7.87 billion.

The other thing to watch will be PayPal’s forward guidance, which will come a week after the company unveiled new features to boost its growth. For example, it launched Fastlane, a solution that quickens the checkout process. 

PayPal stock price forecast

PYPL chart by TradingView

PayPal share price has been in a slow uptrend in the past few months. It rose above the 200-day moving average initially and then pulled back. The shares have formed an inverse head and shoulders pattern. Also, the stock has moved above the 50-day Exponential Moving Average (EMA). 

Therefore, the stock will likely continue rising as buyers target last week’s high of $68.15. A break above that price will see it jump to the key level at $76.60, its highest swing on July 31st. This price is about 20% above the current level.