PayPal earnings: Can company shake the image of being a ‘melting ice cube’?

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PayPal Holdings Inc.’s new management pleased investors three months back with its strategic vision for the future. But when PayPal next reports results Wednesday afternoon, Wall Street may be looking for more than just talk.

After a tough run for PayPal shares
in recent years, investors have been hoping that a refreshed executive team could reignite momentum. Chief Executive Alex Chriss seemed to be speaking their language when he vowed to refocus the company on profitable growth going forward.

Yet while PayPal shares are up more than 20% since the company’s last report, Chriss’ honeymoon phase may be over. Shares ended up selling off nearly 4% one day in late January when the company’s “innovation” event failed to live up to the hype that preceded it — a sign that Wall Street wants tangible signs of progress at PayPal.

See more: PayPal CEO sees ‘huge monetization opportunity’ after revamp, but stock drops

“While we are playing the long game, investors still likely need to see some pass completions and ball control,” Susquehanna analyst James Friedman wrote recently.

Whether Wall Street gets what it’s seeking in the upcoming report remains to be seen. Bernstein’s Harshita Rawat sees “way too many moving pieces,” and she’s not sure whether the company will opt to give full-year guidance given the company’s new emphasis on profitable growth as well as uncertainties around the company’s credit businesses.

Morgan Stanley’s James Faucette will be focused on the company’s outlook for gross-profit growth, as he and his team think “gross-profit surprise is the most likely source of a positive stock reaction that could squeeze the stock towards our $66 [price target].”

“Among investors we speak to, most are modeling for flat to slightly positive gross profit growth this year,” he added, and PayPal will need to accelerate growth of branded checkout volumes and improve the economics of its unbranded Braintree checkout product if it wants to better its trends.

Faucette sees largely bearish PayPal sentiment, “primarily amid ‘melting-ice-cube’ concerns given most don’t see a path to accelerating branded checkout growth or improving market share amid competition concerns.”

PayPal’s management will be looking to change that perception with Wednesday’s report and commentary.

Read: PayPal’s latest layoffs could prove fodder for the stock’s bulls and bears alike

Barclays analyst Ramsey El-Assal will be watching to see if management sheds light on the potential financial impacts of the products announced at the innovation day.

He also wants to see how the emphasis on profitable growth impacts financials, predicting that guidance for the full year “may undershoot the Street on the top line, but overshoot on margins.”

For the fourth quarter, analysts tracked by FactSet model adjusted earnings per share of $1.36, up from $1.24 a year before, along with revenue of $7.88 billion, up from $7.38 billion.

Consensus forecasts for 2024 call for $4.98 in adjusted EPS on $31.99 billion in revenue.

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