PayPal's stock is climbing after earnings show progress on a key number

By Emily Bary

PayPal sported 4% growth in transaction-margin dollars, whereas it saw a decline on the metric in the fourth quarter

PayPal Holdings Inc.'s earnings look a bit different this time around, but they still reflect the company's efforts to cut costs.

The payments company grew adjusted earnings by 27% to $1.08 a share in the first quarter, with that number reflecting PayPal's (PYPL) new methodology for the metric that now takes into account stock-based compensation.

Under the old format that excluded share-based compensation, PayPal would have earned an adjusted $1.40 a share, up from $1.17 a share a year before and ahead of the FactSet consensus of $1.22 a share.

Shares were up about 5% in Tuesday's premarket trading after the report.

PayPal teased the planned earnings reporting change on its last earnings call. Rival Block Inc. (SQ) has also looked to appease shareholders by better reflecting the true costs of stock-based compensation in its reports.

Other momentum resonated as well with investors, perhaps even more so than the upbeat earnings-per-share performance. The company's transaction-margin dollars came out to $3.5 billion, up 4% from a year before. The closely watched metric captures what PayPal retains after facilitating transactions.

Investors have been worried about transaction-margin dollars in light of faster recent growth for the company's lower-margin unbranded checkout business. But the 4% growth in the latest quarter stands out as a sign of progress, especially after PayPal saw a 1% decline on the metric in the fourth quarter.

For the full year, PayPal models mid- to high-single-digit growth in adjusted earnings per share, it said in its earnings release Tuesday morning. Its prior forecast was for flat growth.

"2024 remains a transition year and we are focused on execution - driving our key strategic initiatives, realizing cost savings, and reinvesting appropriately to position the company for consistent, high-quality profitable growth in the future," Chief Executive Alex Chriss said in a release.

Chriss took over as PayPal CEO last fall and has built on the company's earlier work to create a more streamlined entity. The company announced a fresh round of layoffs earlier this year, which Chriss said at the time was a move intended to "right-size our business, allowing us to move with the speed needed to deliver for our customers and drive profitable growth."

The stock is off 74% over a three-year basis, though it's up 5% over the past three months.

Read: PayPal's stock has been a major laggard. Here's what could get it going.

In looking at the second quarter, the company expects a low-double-digit increase in adjusted earnings per share relative to the 87-cent figure the company notched a year before based on its current methodology. Revenue is expected to rise at a 6.5% to 7% clip on a currency-neutral basis.

The FactSet consensus implies expectations for 7% growth.

For the latest quarter, PayPal generated $7.7 billion in net revenue, up 9%, or 10% on a currency-neutral basis. The FactSet consensus was for $7.5 billion.

Net income on a GAAP basis was $888 million, or 83 cents a share, up from $795 million, or 70 cents a share, in the year-earlier period.

-Emily Bary

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04-30-24 0838ET

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