PayPal Beats on Profit, Misses on Revenue and Raises Its Full-Year Outlook

PayPal earned more than Wall Street expected in the third quarter but took in less revenue than expected, a split that leaves its turnaround resting on margins, not volume growth.

PayPal reported third-quarter results on Tuesday, before the opening bell in New York. Management discussed the results on an earnings call at 8:00 a.m. Eastern time.

Adjusted profit beat; reported profit fell

Adjusted earnings were $1.45 a share. Adjusted strips out items the company treats as one-time.

Analysts had expected $1.31 a share. The estimate is the Zacks consensus, carried the same way by other trackers.

A year earlier, adjusted earnings were $1.34 a share. Reported earnings told a different story.

Reported profit was $1.07 billion, or $1.25 a share. A year earlier it was $1.25 billion, or $1.30 a share.

Revenue and volume both came in light

Revenue grew to $8.58 billion from $8.42 billion. Analysts had expected $8.71 billion.

Total payment volume rose 6% to $487.14 billion. On a currency-neutral basis, volume rose 7%.

Payment transactions rose 7% to 6.8 billion. Volume still missed the $490.93 billion Visible Alpha estimate.

Resilient consumer spending helped sustain that volume. Shoppers kept spending despite economic uncertainty and sticky inflation.

Zacks put the revenue miss at 1.33% against its consensus. The earnings surprise on that same consensus was 10.69%.

Margin dollars did the heavy lifting

Transaction margin dollars rose 2% to $3.95 billion. Transaction margin dollars are revenue left after transaction costs.

The company credited strong contributions from Venmo and Braintree. Braintree is PayPal's unbranded checkout business.

Venmo is PayPal's person-to-person payments app. The company is pushing broader consumer financial services through it.

Adjusted operating margin expanded 16 basis points to 18.8%. A basis point is one-hundredth of a percentage point.

Cost discipline carried much of that gain. PayPal said it is on track for $700 million in gross run-rate savings by the end of 2026.

The savings plan includes cuts to more than 2,000 jobs. It also cuts managerial roles by more than 25%.

The company targets at least $1.5 billion in gross run-rate savings over the next two to three years. It is also accelerating artificial intelligence adoption, including chat agents in customer service.

Streamlining operations and optimizing the portfolio are also supporting the cost effort. The release framed both as part of the same transformation program.

The outlook rose on both horizons

PayPal now expects full-year adjusted earnings of about $5.60 a share. It had guided to about $5.38 a share.

Analysts polled by FactSet expect full-year adjusted earnings of $5.39 a share. The new guide sits above that mark, not just above the old guide.

It also raised its full-year transaction margin dollar guide to about $15.7 billion. The prior guide was about $15.6 billion.

For the fourth quarter, PayPal guided to adjusted earnings of about $1.43 a share. Analysts expect $1.35 a share.

The company also expects slightly positive transaction margin dollar growth in the fourth quarter. That is a slower pace than the third quarter's 2%.

Investors still sold the print

PayPal stock fell 1.4% to $54.22 in premarket trading on Tuesday. The shares had ended Monday down 3.6% at $54.99.

"We are making good progress in our multi-year transformation," Chief Executive Enrique Lores said in a statement.

"While there is more work to do, we are increasingly confident in our path to durable, profitable growth and remain focused on execution," he added.

"We are positive with the results that we delivered, but this is a multi-year process," Lores said in an interview. "This is only the beginning."

He said the company will be targeting earnings-per-share growth in the double-digits. That target is the longer test of the turnaround.

Peers also fell in the premarket session. Global Payments declined 2.3% and Block dropped 0.9%, while Mastercard and Visa each fell.

Lores took the helm earlier this year. The board had ousted Alex Chriss over the pace of change and execution.

A takeover overhang also hangs over the turnaround. Stripe and Advent International offered $60.50 a share this summer, and no deal has materialized.

What remains unknown

What remains unknown is whether branded checkout can reaccelerate. Analysts still focus on the checkout button, where PayPal faces Apple Pay and other rivals. Also unknown is whether margin gains can keep offsetting soft revenue growth. What to watch is the holiday fourth quarter: the $1.43 guide, transaction margin growth, and any update on the takeover speculation. The verified record is clear on the quarter itself: profit beat, revenue missed, and the outlook rose anyway.