When PayPal Holdings reports second quarter earnings on July 30, new Chief Executive Alex Chriss will likely highlight steps taken to improve company profitability. But to boost PayPal stock, some analysts say Chriss also needs to pound the table on how he plans to fight growing competition from Apple.
Analysts expect the digital payments firm to report Q2 EPS of 98 cents, down 15%, with revenue rising 7% to $7.98 billion. Total payment volume is expected to come in at $417.56 billion.
Meanwhile, the Apple threat has been growing and became even more pronounced in June at the company's Worldwide Developers Conference. The tech giant rattled PayPal investors by unveiling new features for Apple Pay. Introduced in 2014, the company's digital wallet has recently gained traction. And, new features could add to the momentum.
Apple Pay checkout on iPhones has been the biggest threat to PayPal.
At WWDC, Apple said Apple Pay would be available on any third party web browser, such as Google's Chrome and Microsoft's Windows PC, not just Safari. So Apple Pay will be more of a threat on desktop PCs.
"This move has the potential to narrow Apple Pay's online acceptance footprint gap versus PayPal," said UBS analyst Timothy Chiodo in a report.
PayPal Stock: Defending Against Apple
Deutsche Bank analyst Bryan Keane is upbeat on PayPal's turnaround but says the company must address Apple's recent moves in payments.
"PayPal appears to be making progress on the key priorities of CEO Alex Chriss including reversing branded share loss," he said in a report.
"We believe the company is set up for another solid quarter where we see potential for (revenue and EPS) upside. Most importantly, PayPal needs to answer questions on how it will gain back share/defend against rising competitors like Apple."
The Apple Pay announcement did not create as much stir as the other company news, led by the launch of Apple Intelligence and the plan to integrate OpenAI's ChatGPT into the Siri voice assistant and iOS 18. But Apple's move to beef up its position in payments emerged as a more serious headache for PayPal and Chriss, the former Intuit executive who took over as PayPal CEO in late September 2023.
PayPal Stock: Profits Matter More Than Apple?
Investors should focus on profitability growth and not fret so much about Apple, said Susquehanna Financial analyst James Friedman.
"PayPal can make their own weather," he told Investor's Business Daily, stressing how PayPal has made moves to improve profitability while also doing more to leverage customer data assets.
In the March quarter, PayPal's active accounts rose 1 million to 427 million from the previous quarter, the first sequential growth since late 2022.
"When it comes down to gross profits, Apple isn't relevant to the conversation," Friedman said. "PayPal can still grow gross profits. While Apple has been a risk since the IPO (in 2015) and Apple is encroaching, PayPal has still been able to add a lot of transaction volume."
Still, other analysts point to the 1.5 billion iPhone users worldwide. Spocket estimates that Apple Pay had 536 million users at the end of 2024.
Further, Apple Pay is now widely accepted in retail stores and more consumers are using "tap to pay," analysts say. Apple Pay checkout on iPhones have been the biggest threat to PayPal.
PayPal Stock: Apple's Fintech Focus
Meanwhile, Apple continues to adjust its fintech strategy. Apple recently said it would stop offering its own buy-now-pay-later service, Apple Pay Later. It launched the service in March 2023. With BNPL installment loans, Apple competed with Affirm Holdings, Square parent Block, PayPal and many others.
In late 2023, Apple said it will phase out its credit card partnership with Goldman Sachs. The Apple Card was launched in 2019. It offered consumers 2% cash back.
Meanwhile, Chriss has been adding fresh talent to PayPal management.
PayPal recently named a new chief technology officer, Srini Venkatesan, formerly at Walmart. The company also brought in Mark Grether as senior VP and general manager of a new advertising business. Grether had been at Uber Technologies.
PayPal plans to set up an ad network that uses their customer data to serve targeted ads for outside marketers. PayPal processed 6.5 billion payments by approximately 400 million customers in the Q1.
New CEO's 'Fastlane'
Another Chriss initiative is "Fastlane," a guest checkout service that doesn't require users to create PayPal accounts. But PayPal will still be able to market to guest checkout users. Susquehanna's Friedman said Fastlane will "open a large vault of unbranded consumer economics."
Further, PayPal has told analysts Fastlane should be widely available in time for the holiday shopping season.
Jefferies analyst Trevor Williams maintains a hold rating on PayPal stock.
"While we don't expect much to change in the narrative around PYPL's structural positioning in branded checkout and new initiatives such as Fastlane likely will take time, we believe visibility into gross profit numbers upside helps de-risk the near-term setup," he said in a report.
Last year, PayPal named a new Chief Financial Officer: Jamie Miller, formerly CFO at consultancy EY.
At Susquehanna, Friedman says one issue is that the unbranded payment-processing business, Braintree, offers solid growth but low profit margins. Uber Technologies is one of Braintree's biggest customers.
Apple Stock: Earnings Due Aug. 1
The PayPal checkout button has strong profitability, but revenue growth has slowed amid stiff competition.
Monetizing Venmo, the person-to-person mobile payment service, is another issue. Venmo still garners most of its revenue from its "Instant Deposit" feature. Venmo collects a small fee when users transfer balance funds into a debit card or bank account.
Also, PayPal aims to generate revenue from new Venmo debit and credit cards. Still, Venmo could face more payments competition from Elon Musk's X social media platform, formerly Twitter, analysts say.
Analysts say Block has done a much better job of creating revenue streams from the Square Cash App.
Further, Chriss has called 2024 a transition year to set the company up for long-term profitable growth for PayPal stock.
Meanwhile, fiscal third quarter earnings for Apple stock are due Aug. 1. The digital wallet is part of the iPhone maker's fast growing services business, which has boosted Apple stock.
For the June quarter, analysts expect Apple to earn $1.34 a share, up 6% year over year, on sales of $84.2 billion, up 3%.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
