Shares in PayPal Holdings popped on Wednesday after the company said it's open to working with activist investor Elliott Management. The e-commerce firm added $15 billion to its repurchase program of PYPL stock when it reported mixed June-quarter financial results.
PayPal reported June quarter earnings late Tuesday. Second-quarter earnings for PayPal stock fell from a year earlier but topped views as total payment volume missed estimates.
Also, PayPal confirmed that hedge fund Elliott Management has taken a $2 billion stake in the company.
PYPL stock popped 9.3% to close at 97.92 on the stock market today.
PYPL Stock: Elliott Management Spurs Cost Cutting
On the earnings call with analysts, PayPal said the company and Elliott Management "are aligned with the mutual goal of maximizing shareholder value, with the initial focus being improved profitability and increased return of capital." PayPal has entered into an information sharing agreement with Elliott Management.
PayPal plans to save $900 million in cost-cutting moves in 2022 and $1.3 billion in 2023.
San Jose, Calif.-based PayPal announced the appointment of Blake Jorgenson as its new chief financial officer. Jorgenson had been executive vice president of special projects at video game company Electronic Arts.
"With more reasonable top-line guidance, a new well-regarded CFO, and Elliott helping mange cost cutting initiatives/capital allocation, PYPL stock now finally appears on the road to recovery," Deutsche Bank analyst Bryan Keane said in a note to clients.
Commitment To Margin Expansion
At Susquehanna, analyst James Friedman said in his report to clients: "From an expense discipline perspective, PayPal committed to both fourth-quarter 2022 and 2023 margin expansion. We believe these initiatives will support long-term earnings power."
As e-commerce boomed during the coronavirus pandemic, shares in PayPal soared. But PayPal stock had plunged about 71% from an all-time high of 310.16 on July 26, 2021.
Some analysts urge caution on a possible PayPal turnaround.
"We are somewhat surprised by the 12% move in shares, as 2023 estimates are largely unchanged," said Bank of America analyst Jason Kupferberg in a report. "A second straight in-line-ish quarter is encouraging. (But) in our view visibility on longer-term normalized earnings power remains limited and uncertainty lingers around PYPL's strategic pivot."
PayPal earnings for the quarter ended June 30 came in at 93 cents per share, down 19% from a year earlier. The e-commerce company said revenue rose 10% to $6.8 billion.
Analysts expected PayPal earnings of 87 cents a share on revenue of $6.78 billion. A year earlier, PayPal earned $1.15 a share on sales of $6.24 billion.
PayPal Stock: Payment Volume Light
In the second quarter, total payment volume processed from merchant customers climbed 13% to $339.8 billion. Analysts had projected total payment volume of $342.83 billion.
For the current quarter ending in September, PayPal forecast EPS of 95 cents, in line with estimates. PayPal forecast revenue of $6.8 billion, below estimates of $7.02 billion.
"Defying the bears who were anticipating further guidance cuts, management left its 2022 guidance largely the same, adjusting revenue growth to the low end of the range (+11%), but modestly increasing EPS," MoffettNathanson analyst Lisa Ellis said in a report.
At UBS, analyst Rayna Kumar said in a note: " With potential to generate $5 billion-plus of free cash flow this year, PayPal stock looks undervalued."
PayPal Stock Repurchase Program
According to Ben Silverman, director of research at VerityData, PayPal's buyback announcement should be approached cautiously.
In an email, he said PayPal expects 2022 buybacks to total around $4 billion. He said PayPal repurchased $2.25 billion in shares in the first half of 2022. As a result, he said repurchases could slow during the back-half of the year.
"The company's outstanding shares have only been reduced by about 1.4% by the buybacks of the past 3.5 years," he added.
PayPal stock holds a Relative Strength Rating of only 13 out of a best-possible 99, according to IBD Stock Checkup.
Former parent eBay, which spun off PayPal in 2015, has shifted its payment processing from PayPal to Netherlands-based Adyen.
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Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
