PayPal: Mid-Teens Underlying Growth In Q2, Margin Expansion Guided Ahead

(Preview) Company Update (PYPL US) (Buy)

Summary

• PayPal stock rose 11% in aftermarket trading on Tuesday (August 2), after the company released Q2 2022 results.

• The confirmation of Elliott Management's $2bn stake was a big positive, but PayPal's operating performance was also reassuring.

• Despite rising macro headwinds, PayPal is continuing a roughly mid-teens underlying growth, excluding eBay and currency.

• Cost savings are in full swing, headcount is already lower than the start of 2022, and EBIT margin is expected to expand in 2023.

• At $99.75, shares are at a 21x P/E (27.5x on GAAP EPS) and expected to return 121% (26.7% annualized) by 2025 year-end. Buy.

Introduction

PayPal Holdings, Inc. stock rose 11% in aftermarket trading on Tuesday (August 2), after the company released Q2 2022 results. Despite this, PYPL stock remained more than two thirds down from its peak last July.

Compared to when we upgraded our rating on PYPL to Buy in May 2020, shares are down 28%, entirely due to the P/E multiple shrinking from 45x (2019 Non-GAAP EP…