3Q22 earnings beat overshadowed by prudent 4Q forecast
- 3Q revenue and EPS beat street expectations
- Forecast for 4Q fell short of street estimates; revenue guidance for FY22 cut to 10% growth
- Discretionary e-commerce spending could be weighed down by weaker macroeconomic outlook
- Paypal plans to maintain aggressive share repurchases in 2023
3Q revenue and EPS beat street expectations. Paypal reported 3Q revenue of $6.85b, slightly ahead of street expectations of $6.82b. Actual EPS of $1.08 per share was also higher than the expected $0.96 per share.
Forecast for 4Q fell short of street estimates; revenue guidance for FY22 cut to 10% growth. Paypal estimated 4Q revenues of $7.38b which was lower than consensus expectations of $7.74b. For FY22, Paypal has lowered its revenue guidance from 11% growth to 10% growth on a currency-neutral basis but increased non-GAAP EPS from $4.07 to $4.09 on optimization of operational costs alongside business resilience owning to diversification and scale. The recent pullback in Paypal’s share price could be due to weaker sentiment for 4Q/FY23 despite stronger than expect 3Q results.
Discretionary e-commerce spending could be weighed down by weaker macroeconomic outlook. Management expects inflationary pressures and slower economic growth to affect e-commerce spending which could continue through 2023. While they believe that it is premature to provide a detailed 2023 outlook, they are assuming that overall volumes will grow ahead of e-commerce in the core markets and Paypal will continue to win market share.
Paypal plans to maintain aggressive share repurchases in 2023. Year till date, Paypal has returned 78% of free cash flow to shareholders, amounting to $3.2b. In the third quarter alone, Paypal has completed an additional $939m in share buybacks and they expect 4Q share buybacks of $1b. Management is of the view that share buybacks offer flexibility to invest in the business and will seek to take a similar approach in 2023.