PayPal Stock Falls Despite EPS Beat and Higher Outlook

What happened

PayPal reported quarterly non-GAAP EPS of $1.45, beating the $1.31 consensus, but revenue of $8.58 billion missed the $8.72 billion estimate. Shares fell 1.42% in premarket despite the company raising its full-year non-GAAP EPS guidance to about $5.60 from about $5.38.

Confirmed

Global impact / market context

PayPal earns a fee on each payment it processes, so the revenue shortfall suggests total spending through its network grew slower than analysts expected. Higher profit guidance and $1.5 billion of share buybacks support earnings per share, but weaker sales can pressure the stock.

Analyst inference

Investors are weighing stronger profit per share and a raised outlook against slower revenue growth. PayPal bought back about 28 million shares, which lifts earnings per share by reducing the share count, while U.S. revenue grew 5% and international revenue fell 2%.

Analyst inference

What to watch

1. Fourth-quarter non-GAAP EPS guidance is about $1.43, and PayPal expects full-year non-GAAP EPS of about $5.60, so watch whether actual results meet these company targets. Confirmed
2. Watch whether PayPal can lift revenue growth toward the analysts' estimate, since the quarterly shortfall and 2% international revenue decline point to weaker sales outside the United States. Proposed
3. Watch restructuring charges that lowered GAAP EPS 4% to $1.25, because continued charges would reduce reported profit even if adjusted earnings stay strong. Analyst inference

Evidence

• gurufocus.com