PayPal: Surprise eBay Losses In Q2, But Long-Term Vision On Track (Preview)

Company Update (PYPL US) (Buy)

Summary

• PayPal stock fell by more than 10% in the three trading days following Q2 results in July, but has staged a partial recovery since.

• Main negatives from the results were the cut in 2021 margin outlook and the declines in earnings in Q2 (excluding credit releases).

• These negatives were mostly due to the loss of eBay business, long-anticipated and one-off, though happening faster than expected.

• PayPal's growth metrics and margin outlook remain on track, and it continues to progress in key areas of its integrated ecosystem.

• With shares at $288.47, we expect a 59% total return (14.9% annualized) by 2024 in our Upside Case, and a profitable Downside Case.

Introduction

We review our investment case on PayPal Holdings Inc. in this article.

We originally upgraded our rating on PayPal from Neutral to Buy in May 2020. Since then, PYPL share price has risen 107%, including 23% year-to-date. However, Q2 2021 results (released after the close on July 28) disappointed, sending shares down more than …