Cost cutting and a stock buyback could be giving shares in PayPal Holdings a boost in early 2023. But a big bugaboo remains for PayPal stock: Apple Pay's growth.
PayPal's fourth-quarter earnings are due Thursday. A year ago, the digital payment processor shocked Wall Street with weak guidance. Management also abandoned five-year financial targets and shifted away from driving user growth for PayPal's payment technologies.
After plunging 62% last year, PayPal stock has advanced 16% thus far in 2023 heading into the earnings report. For full-year 2023, analysts estimate 16% per-share earnings growth with revenue climbing 9%.
If the U.S. economy falls into a recession, PayPal's revenue growth would likely be impacted, analysts say. Due to its online checkout button, PayPal is mainly viewed as a play on e-commerce growth.
PayPal Stock: Apple Pay Competition
That's where Apple Pay comes in. Apple's payment technology has gained market share for in-store payments. While that's a problem for PayPal and other payment firms, it's the online shopping on iPhones that's a bigger problem. Apple's e-commerce growth is coming from iPhone users and mobile shopping.
PayPal has 432 million active accounts. But Apple has more than 1.2 billion global iPhone users.
"PYPL is most vulnerable to Apple Pay checkout on the iPhone," Mizuho Securities said in a note to clients. The Mizuho report noted that share loss to Apple Pay "haunted" PYPL stock in 2022.
At Deutsche Bank, analyst Bryan Keane said in his note to clients that total payment volume processed from merchant customers will be a key financial metric in the PayPal earnings report.
"The most important debate which will drive the (PayPal stock) multiple going forward, in our view, is if PYPL is losing market share," Keane said.
For full-year 2023, analysts estimate 9.5% total payment volume growth to $1.49 trillion.
Keane noted that PayPal is still a larger payment platform than Apple Pay. PayPal accounts for 16% of global e-commerce purchases vs. 5% for Apple Pay, Keane said.
Apple Pay Usage Grows
According to a recent Evercore ISI consumer survey, Apple Pay in 2022 posted the largest year-over-year gain in usage among the top five mobile payment wallets. Meanwhile, Apple Pay was rated the best overall consumer experience in the survey.
"Our findings are incrementally negative for PYPL, validating concerns about demand-side disruption tied to rising competitive pressure, especially from Apple Pay," the Evercore report said.
At Jefferies, analyst Trevor Williams said cost-cutting will help boost PayPal earnings in 2023. But for the stock to work, PayPal revenue growth will be key.
"We believe a re-rating in the stock will need to come from more confidence in the medium-term growth algorithm, namely, growth of branded checkout relative to the broader e-commerce market," he said in a note.
Buyback Program For PayPal Stock
Meanwhile, PayPal announced a $15 billion share buyback program in August. About $4 billion of that was expected to be used up in 2022.
In addition, PayPal in January announced plans to cut 2,000 jobs, about 7% of its workforce.
PayPal stock analysts project December-quarter earnings of $1.20 a share, up 7% from a year earlier. Revenue is expected to climb nearly 7% to $7.39 billion.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
