Insights

Why PayPal Rose 23.9% in July

What happened

Shares of PayPal Holdings (NASDAQ: PYPL) rose 23.9% in July, according to data provided by S&P Global Market Intelligence.

Despite this surge, the payment company’s shares are still more than halfway below where they were at the start of this year.

Image source: Getty Images.

So what

Investors had begun to feel less pessimistic about fast-growing technology firms, as evidenced by the sharp 12.3% rebound in the Nasdaq Composite index for the month. PayPal’s shares climbed in tandem with the overall rise in sentiment for high-growth stocks, but the company wasn’t doing badly in the first place. Total payment volume (TPV) still grew by 13% year over year for its first quarter while net revenue rose 7% year over year. 

Now what

PayPal followed up with another solid set of earnings for its second quarter, announced Aug. 2. Net revenue clocked in at $6.8 billion, up 9% year over year, while TPV climbed 9% year over year. Of note, free cash flow jumped by 22% year over year to $1.3 billion, and the company added 400,000 net new accounts, ending the quarter with total active accounts of 429 million. The volume of payment transactions grew by 16% year over year to 5.5 billion, with a 12% year-over-year improvement in the number of payment transactions per active account to 48.7.

Investors were also heartened to note that guidance for PayPal’s adjusted earnings per share was raised to a range of $3.87 to $3.97, up from the previous $3.81 to $3.93. The payment company also announced that Blake Jorgensen had replaced John Rainey as CFO. The latter left the firm earlier in the year to join Walmart as its CFO. Jorgensen was previously the CFO of gaming company Electronic Arts. PayPal continues to search for a new chief product officer as its current CPO, Mark Britto, is retiring by year-end.

Meanwhile, PayPal has been busy building its capabilities and expanding its collaborations. During the quarter, it introduced cryptocurrency transfers between PayPal and other digital wallets while expanding its partnership with Shopify to add another payment option for merchants in France. The company also introduced a new program for small businesses that helps them to gain mentors and crucial funding that act as catalysts for their businesses to grow.

PayPal also announced additional initiatives that can generate up to $1.3 billion in cost savings, and that it expects margins to increase next year. The board has also authorized a new $15 billion share buyback scheme and is working with major shareholder Elliott Investment Management L.P. to evaluate different ways of returning capital to shareholders.

Royston Yang has positions in PayPal Holdings. The Motley Fool has positions in and recommends PayPal Holdings, Shopify, and Walmart Inc. The Motley Fool recommends Electronic Arts and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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