PayPal Q2 earnings: a blessing in disguise 🤑; US banks will soon be subjected to more stringent capital requirements💰; Revolut suspends crypto services in the US 🇺🇸
FinTech is Eating the World, 4 August
Hey Everyone,
TGIF! It’s been another crazy week in FinTech… 🤯 And it’s not over as today we’re looking at PayPal’s latest earnings (why it’s a blessing in disguise + a deeper dive into one of the strongest companies in Finance today), US banks that will soon be subject to more stringent capital requirements (what this means & all you need to know), and Revolut that just suspended crypto services in the US (it won’t help their US ambitions). So let’s jump straight into the cool stuff 🌶
PayPal Q2 earnings: a blessing in disguise 🤑
Earnings call 📞 Finance behemoth PayPal PYPL 0.00%↑ has released its latest earnings. Despite a strong performance, the stock has dipped.
Let’s take a closer look and see why it’s a blessing in disguise.
More on this 👉 Here are the key takeaways from PayPal's Q2 2023 investor update:
PayPal reported revenue of $7.3B, up 7% year-over-year and at the high end of guidance.
Total payment volume (TPV) grew 11% to $377B.
Operating margin expanded ~230bps to 21.4% on a non-GAAP basis. This was driven by an 11% decline in non-transaction expenses.
PayPal reiterated its full-year 2023 guidance, including:
Non-GAAP EPS growth of ~20% to ~$4.95
Non-GAAP operating margin expansion of at least ~100bps
Free cash flow of ~$5B
Finally, PayPal announced an agreement to sell its European BNPL receivables to KKR, which is expected to generate ~$1.8B in proceeds. This will help optimize PayPal's balance sheet.
What’s up with the stock? 🤔 Despite all this performance, the stock fell. Why?
Well, three main reasons got investors worried:
Weak Margins. PayPal's weak second-quarter margins have raised concerns about the company's growth potential. The company's enduring strength in unbranded volume is also creating profit challenges.
Slower Growth Rates. Although PayPal's sales are still increasing, growth rates have slowed down. As pandemic restrictions began to ease, PayPal's stock growth started to fall off.
Rising Competition. PayPal is facing rising competition in the digital payment space. While PayPal is still the leader in its industry and profitable, investors are concerned about the company's ability to maintain its position in the face of increasing competition (think Stripe, Adyen, Block SQ 0.00%↑ here).
✈️ THE TAKEAWAY
Looking ahead 👀 Overall, I’d argue that it was still a solid quarter for PayPal with disciplined execution driving double-digit TPV growth and 24% non-GAAP EPS growth. Also, the company seems on track to meet its full-year guidance. Furthermore, 4.53% growth in transaction revenue QoQ indicates the company's ability to generate revenue from its core business while 10.81% growth in TPV yet again reflects PayPal’s ability to attract and retain customers, as well as its potential for future revenue growth. Finally, given its free cash flow (FCF) of ~$5B is clear that PayPal is an underrated cash-generation machine.
Still not convinced? Read this:
ICYMI: PayPal's solid results and why it's one of the strongest companies in the digital money space 💸 [deed dive into PayPal + lots of bonus reads]
Disclaimer: this isn’t investment advice and I’m a shareholder of PayPal.