PayPal raises its 2024 profit forecast for a second time as spending remains steady and margins improve

PayPal (PYPL) on Tuesday raised its full-year adjusted earnings forecast for the second time, betting on resilient consumer spending through the back-to-school season and the upcoming holiday season while cost-cutting measures margins improved.

Shares of the payments giant rose 4% in premarket trading after the results.

American consumers have remained remarkably steadfast, despite longer interest rates burning a hole in their pockets. Even as competing payments companies have raised concerns about increasing pressure on the lower income bracket, the industry has recorded broadly steady growth in transaction volumes this year.

Meanwhile, under CEO Alex Chriss, the company has focused on improving operating margins through restructuring, aggressive cost cutting and workforce reductions. In January, the country announced plans to cut about 2,500 jobs, or 9% of the global workforce.

PayPal now expects adjusted earnings growth in the “low to mid-teens” range through 2024, compared to April’s forecast of a “mid-to-high single digit” increase.

Total payment volume rose 11% to $416.81 billion in the second quarter, while net revenue rose 9% to $7.89 billion on a currency-neutral basis.

PayPal’s operating margins increased 231 basis points to 18.5% in the quarter on an adjusted basis. Margins have been at the center of investor concerns over the past year after growth slowed following the pandemic.

To allay some concerns, total payment volume at branded checkouts grew by about 6% in the second quarter. PayPal said branded checkout, Braintree and Venmo contributed to the highest growth in dollar transaction margins – a key measure of the profitability of its core businesses – since 2021.

Dollar transaction margins increased 8% to $3.61 billion in the quarter.

The entry of major tech giants such as Apple (AAPL) and Google parent Alphabet (GOOG) into the digital payments space in recent years has increased competition, hurting PayPal’s market share.

As a result, the weakness of PayPal’s unbranded businesses, such as Venmo, has weighed on the stock, even as PayPal’s unbranded businesses have grown.

Shortly after his appointment as CEO last year, Chriss had said he expected to increase revenue beyond purely transactional volumes and pledged to make the fintech leaner.

PayPal also expects third-quarter revenue to grow at a “mid-single-digit rate,” lower than Wall Street expectations of an increase of about 7.5%, according to LSEG data.

Adjusted earnings per share rose to $1.19 in the three months ended June 30, compared with 87 cents a year ago.

(Reporting by Manya Saini in Bengaluru; Editing by Pooja Desai)