PayPal earnings beat analyst projections, boosted by AI payments | PaymentsSource

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PayPal’s focus on artificial intelligence-driven checkout technology helped boost its third-quarter earnings and led the payment company to raise its full-year guidance.

For the quarter ended Sept. 30, PayPal reported net revenue of $7.85 billion, up 6% from the prior year’s third quarter and just below analyst projections of $7.88 billion according to FactSet.

Earnings per share rose to 99 cents from 93 cents a year ago, although net income eased to $1.01 billion from $1.02 billion in the year-ago period.

The payment company also reported adjusted earnings of $1.20 per share, up 22% from the prior year and beating Wall Street’s call for $1.07 a share, according to FactSet. 

For the full year, PayPal tightened its EPS range forecast to $3.92-$3.96, from $3.88-$3.98 in July. It raised its adjusted earnings guidance for the year to high teens growth, from low to mid-teens growth previously. 

For the fourth quarter, PayPal expects low single-digit growth for revenue as a result of the impact of its price-to-value strategy and prioritization of profitable growth. The company widened its forecast for earnings per share to $1.03-$1.07, from around $1.05 previously.

“We are making solid progress in our transformation as we bring new innovations to market, forge important partnerships with leading commerce players, and drive awareness and engagement through new marketing campaigns,” said PayPal CEO Alex Chriss in the earnings release.

PayPal’s stock was trading around $86 before reporting earnings, up from about $36 in January, as investors parse the performance for signs that the company is turning a corner following a stock slump in 2022 and 2023.

PayPal’s recovery plan has been to refocus on its traditional payment business, including services for merchants and consumers, and improvements to its Venmo peer-to-peer transfer app.

PayPal has been showcasing its Fastane checkout product as part of its strategy. Fastlane lets consumers pay with a one-time passcode, which is designed to simplify the payments experience.

But some analysts think PayPal, which faces competition from Stripe, Block and other digital checkout systems, will be challenged to achieve robust growth next year.

Bernstein in October downgraded PayPal to market-perform from outperform, saying the potential for substantial stock gains appears limited. 

In a research note issued before PayPal’s earnings, Jeffries said PayPal’s stock has run on a contribution from Fastlane that are “unlikely to be impactful” in the next 12 months. And a pre-earnings release research note from William Blair said, “From here we believe that the road becomes more difficult as PayPal seeks to boost branded volume growth and Venmo monetization, efforts we see challenged by strong wallet competition and consumer inertia.”

Fastlane, which doesn’t require users to have PayPal accounts, draws from consumers’ past payments to recommend a payment option, giving PayPal the ability to act as a payments facilitator. Payments facilitation has become a major front in the competition between payment companies, which use the feature to support multiple payment types for merchants, cutting processing costs and time.

BigCommerce, one of Fastlane’s initial clients, said e-commerce checkout conversion increased to 70% from about 45% following Fastlane’s deployments.

Following BigCommerce, PayPal has been accumulating partners to rapidly expand Fastlane. A collaboration with checkout technology company Bold Commerce will add Checkout for retailers that use Adobe Commerce’s Magento e-commerce platform.

It’s part of a series of deals PayPal is making to grow the streamlined checkout product, which serves as an alternative to online payment systems from the card networks and other fintechs. A more recent partnership with payment processor Global Payments increased Fastlane’s addressable market to include Global Payments’ merchants in the U.S., with plans to expand internationally. Fastlane’s partners additionally include Dutch-based payment technology company and processor Adyen and U.S.-based bank technology seller Fiserv. Both partnerships potentially extend PayPal’s Fastlane to thousands of merchants in multiple countries.

Among other publicly traded payment firms, Visa reports earnings today following the market close, Mastercard reports earnings on Thursday before the market opens, and Block reports earnings Nov. 7.