PayPal: Q1 Resets Expectations & Points To Bottom

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

Summary

• PayPal shares have rebounded 11% since results, but remain 71% below their July 2021 peak, having more than halved in the past year.

• Q1 results were weak, due to a further loss of eBay volumes and poor macro. 2022 outlook was cut, and 2025 outlook was withdrawn.

• PayPal was too optimistic on growth, but the strategy has been refocused. We expect growth to reaccelerate and margin to expand.

• We believe a mid-teens EPS growth is achievable, based on PayPal's track record and what it expects to achieve even in 2022.

• With shares at $91.53, even if they never return to their peak, we expect a total return of 134% (27.1% annualized) by 2025 year-end. Buy.

Introduction

We review our investment case on PayPal Holdings, Inc. after Q1 2022 results were released post-market last Wednesday (April 27).

PayPal shares have rebounded 11% since results, but remain 71% below their July 2021 peak, having more than halved in the past year. Compared to when we upgraded our rating on PYPL to Buy in May 2020,…