Should I buy PayPal stock after Q3 results?


PayPal Holdings, Inc. (NASDAQ: PYPL ) reported solid third-quarter results on Thursday, but the company’s management again lowered expectations for the coming quarters.

The total payment volume increased 14% in the 3rd quarter

PayPal reported solid third quarter results this Thursday; Total revenue rose 10.8% year-over-year to $6.85 billion, slightly above expectations, while earnings per share were flat. stock came in at $1.08 (+$0.12).

Total payment volume grew 14% to $337 billion in the third quarter of fiscal 2022 compared to the same period in 2021, and the company added 2.9 million new active accounts.

On the downside, the company’s management has again lowered expectations for the coming quarters, reporting that 2022 sales and net growth may fall below previous guidance.

PayPal now expects between 8 million and 10 million new net active accounts in fiscal 2022, up from previous guidance of 10 million, while revenue should be $27.53 billion, up from previous guidance of $27.85 billion.

Still, Trust Securities analyst Andrew Jeffrey said he expects PayPal’s revenue to grow faster than Amazon.com, Inc.’s ( NASDAQ:AMZN ) but behind Visa, Inc. ( NYSE:V ) . Mastercard Incorporated (NYSE: MA ) forecast percentage growth will lag in the low to mid-teens. Andrew added:

Over time, we think PayPal will struggle to grow faster than eComm given its significant non-Amazon share.

PayPal’s business model is relatively resilient to recessions because demand for payment services is not overly cyclical.

The company continues to have strong cash flow, and it’s important to note that PayPal generated $1.77 billion in free cash flow on revenue of $6.85 billion in Q3. That equates to a free cash flow margin of 26%, up 7% sequentially.

With a market value of 85.71 billion USD is PayPal fairly valued and comparable to Mastercard on a price-to-sale basis.

On a price-to-sales basis (market cap/sales), PayPal shares trade at 3.17, which is several times lower than Mastercard’s price-to-sales ratio, which trades at a P/E of 14.15.

It’s also important to note that Visa trades at more than 13 times this year’s sales, and even in a very uncertain macroeconomic and regulatory environment, shares of PayPal could be a good bet.

Technical Analysis

PayPal’s stock price is down more than 60% after hitting a 2022 high of $196.10 on Jan. 4, and the risk of another drop remains.

The price has moved back below the 10-day moving average, suggesting that the bottom may not be in yet.

Data source: tradingview.com

The current support level is $70, while $90 is the first resistance level. If the price falls below $70, that would be a sell signal and the path to $65 is clear.

On the other hand, if the price rises above $90, the next target may be resistance at $100.

Summary

PayPal on Thursday reported solid results for the third quarter, but the company’s management again lowered expectations for the coming quarters. The company continues to have strong cash flow, and even in a very uncertain macroeconomic and regulatory environment, shares in PayPal can be a good bet.

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