What happened
Shares of PayPal Holdings (PYPL 0.64%) were down 1.7% as of 1:17 p.m. ET on Wednesday following comments from one analyst that maintained a hold rating on the stock. Jefferies analyst Trevor Williams says PayPal's earnings per share, a key measure of profitability closely watched by analysts, will be in the spotlight when it reports third-quarter results on Nov. 3.
The stock has been fallen 55% this year over slowing growth coming out of the pandemic. According to this analyst, it's going to take more than an earnings beat to lift the stock.
So what
The analyst doesn't see PayPal reporting any surprises to change the narrative in the upcoming earnings report. Williams expects PayPal to report revenue below the Street's estimates, but higher margins should lead to upside in earnings per share.
A beat on the bottom line is a good bet, since management has been working to slow the increase in what it can control, which is non-transaction-related expenses.
However, revenue growth is somewhat out of PayPal's control right now, since it will depend on the level of consumer activity in the economy, in addition to the impact from increasing competition in the digital wallet space.
Now what
PayPal reported revenue growth of 9% year over year in the second quarter. Excluding the lost payment volume from eBay, which transitioned to its own payments system, PayPal's revenue would have increased 14%. Analysts expect PayPal to report 10.4% year-over-year growth for the third quarter.
The stock is still expensive for a company dealing with decelerating growth. PayPal's forward price-to-earnings ratio is currently 21, which is a premium to the market average multiple of 17.
The most important number that will indicate the degree that competition is eating into PayPal's market share will be net new active accounts. Management expects to report a better number than the 400,000 accounts added in the second quarter.
