PayPal Q2 earnings beat estimates as Stripe bid hangs over forecast

PayPal Q2 earnings came in ahead of Wall Street expectations, and the payments company raised its full-year adjusted profit outlook to about $5.38 per share. The report gives PayPal more room to argue for a higher valuation less than two weeks after Stripe Inc. and Advent International L.P. made a $53 billion offer that PayPal’s board considers too low.

PayPal shares ended regular trading up 4% after the results. For the quarter ended June 30, the company reported adjusted earnings of $1.38 per share on revenue of $8.68 billion. Analysts had expected $1.28 per share on $8.47 billion in revenue, according to estimates cited by Yahoo Finance.

On a GAAP basis, PayPal’s net income declined 12% from a year earlier to $1.1 billion, or $1.25 per share. Adjusted earnings were down 1% year over year, while revenue rose 5%.

What did PayPal report for Q2?

PayPal’s volume metrics were stronger than its profit metrics. Total payment volume increased 10% to $486.4 billion, and payment transactions rose 8% to 6.8 billion. Active accounts were 439 million, up 0.3% from a year earlier, though the company had about 200,000 fewer active accounts than in the first quarter.

Margins remain the less flattering part of the story. Adjusted operating income fell 8% to $1.5 billion, and adjusted operating margin narrowed by 248 basis points to 17.4%. Transaction margin dollars, a metric Chief Executive Enrique Lores has emphasized in PayPal’s turnaround plan, increased 1% to $3.9 billion.

The company said branded checkout volume grew 2% on a currency-neutral basis, marking a second consecutive quarter of growth for a business that has weighed on PayPal’s core performance. PayPal said buy now, pay later volume rose 26%, while Venmo and Braintree each posted mid-teens growth.

In PayPal’s earnings release, Lores said the company had acted quickly during the quarter to refine its transformation plan and said branded checkout had stabilized further. The company did not say that active account growth had returned to a sustained expansion trend.

What is PayPal’s new forecast?

PayPal now expects full-year adjusted earnings of about $5.38 per share. Its previous outlook called for performance ranging from a low single-digit decline to slight growth. The company also raised its full-year target for transaction margin dollars to $15.6 billion.

For the third quarter, PayPal projected a low-single-digit percentage decline in adjusted earnings compared with $1.34 per share a year earlier. The company also bought back about 33 million shares in the quarter for $1.5 billion and declared a 14-cent dividend payable Sept. 25 to shareholders of record as of Sept. 4.

PayPal’s cost plan calls for at least $1.5 billion in savings over two to three years, including $400 million identified for 2026. Chief Financial Officer Jamie Miller told analysts the company is trying to grow transaction margin dollars faster over time by broadening its revenue streams.

Where does the Stripe bid stand?

Stripe and Advent offered $60.50 per share for PayPal on July 15, according to prior reports, valuing the proposed buyout at $53 billion. TechTimes reported that PayPal’s board rejected the offer on July 20 and was seeking a price closer to $70 per share.

Cantor Fitzgerald analyst Ramsey El-Assal published a peer-multiple sum-of-the-parts analysis after the offer emerged, looking at Venmo, branded checkout and Braintree. His analysis suggested about $70 per share would more fully reflect PayPal’s intrinsic value. El-Assal’s rating on PayPal is neutral, with a $54 price target.

The quarter gives PayPal evidence of operational progress, especially in volume growth and its raised outlook. It also shows the limits of the turnaround so far: operating income fell, margins compressed and active accounts barely grew year over year.

This story draws on original reporting from SiliconANGLE.