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Key Insights
- The PayPal stock price plunged by over 8% after its second-quarter earnings.
- It dropped because of the rising costs and lower transaction margins.
- Technicals suggest a rebound is possible if it holds the lower side of the channel.
The PayPal stock price crashed by over 8% on Tuesday after it published its second-quarter financial results. It plummeted to a low of $71.45, down by over 25% from its highest point this year. This article explores why the stock plunged and whether it is safe to buy the dip.
PayPal Stock Price Plunged After Earnings
PayPal share price crashed by over 8% after publishing its second-quarter results, which were better than expected. Its revenue rose by 5% to $8.3 billion, higher than the expected $7.9 billion. Its growth was primarily driven by Venmo, its peer-to-peer payment platform, whose revenue rose by 20%.
Similarly, its earnings per share (EPS) of $1.29 were up by 20% from the same period last year. It was higher than analysts expected by ten cents. However, the stock crashed as the transaction margin dollars rose by 7% to $3.84 billion, lower than the first quarter’s 8%.
PayPal stock also dropped because of the falling free cash flow. According to its financial statement, the company’s free cash flow tumbled by 49% to $692 million.
The results also showed that its active accounts rose by 2% to 438 million, while the number of payment transactions fell by 5% to 6.2 billion.
PayPal is Facing Major Challenges
The PayPal stock price has underperformed the S&P 500 Index and other fintech companies like Visa and Mastercard. As the chart below shows, it has plunged by over 60% in the last five years, while the S&P 500, Visa, and Mastercard have jumped by over 70% in the same period.
The ongoing performance is mostly because of the company’s slow revenue growth. Unlike in the past when it used to experience double-digit revenue growth, the company’s revenue is now growing by single digits.
Yahoo Finance data shows that the average revenue estimate for the financial year is $32.95 billion, up by 3.64% from what it made in 2024. Analysts also expect the company’s revenue will be $34.8 billion in 2026.
PayPal stock price has also underperformed. That’s likely because its venture into the stablecoin industry has not been as successful as analysts were expecting. PYUSD, its stablecoin, which it launched in 2023, has a market capitalization of less than $1 billion.
In contrast, Ripple USD (RLUSD), which was launched in December, is approaching the $600 million milestone.
Additionally, there is a likelihood that stablecoins will disrupt its business in the long term. Stablecoin transactions are significantly cheaper and faster than PayPal’s services.
For example, a $10 million stablecoin transaction can cost less than $10 to complete. A similar transaction on PayPal would cost as much as $300,000.
It explains why the company launched Pay With PayPal this month, a solution that allows users to pay using stablecoins. Even if this service is successful, the revenue to PayPal will likely be lower over time.
On the positive side, PayPal is returning vast sums of money to investors through dividends and buybacks. It returned $1.5 billion in the last quarter, bringing the 12-month returns to $6 billion.
The other positive is that its current stock of $71.45 is cheaper than the analysts’ estimate of $83.3. That gives it a 16% upside from the current level.
PayPal Share Price Technical Analysis
The daily timeframe shows that the PYPL stock price tumbled after it published its financial results. This crash happened after it rose to a high of $79.42 earlier this week, a notable level since it was the upper side of the ascending channel.
The stock retested the lower side of the ascending channel that connects the lowest swings since May last year. It has also formed a megaphone pattern, comprising two ascending and diverging patterns.
Therefore, there is a likelihood that the stock will bounce back as the earnings panic eases. If that happens, it will rise and retest the upper side of the channel at $79.42. A drop below the lower side of the channel at $70 will invalidate the bullish forecast.
Summary
PYPL stock price crashed sharply after its earnings on Tuesday as its expenses rose and margins narrowed. The company faces major challenges, including disruption from stablecoins and competition in its unbranded solutions.
However, the PayPal stock has crashed to a key support level, and the company is actively reducing its outstanding shares. This means that the stock may rebound as bulls retest its upper side.
Disclaimer
This article is for informational purposes only and provides no financial, investment, or other advice. The author or any people mentioned in this article are not responsible for any financial loss that may occur from investing in or trading. Please do your research before making any financial decisions.
