Jefferies sees PayPal stock gross profit growth, but warns of 2025 headwinds By Investing.com

On Thursday, Jefferies maintained a Hold rating on PayPal Holdings Inc . (NASDAQ:) stock, with a consistent price target of $75.00. The firm’s analysis suggests a stable path for the company’s gross profit in the second half of the year and adjusts the outlook for PayPal’s Online Virtual Auction Services (OVAS) through the second half and into 2025, taking into account the anticipated impact of rate cuts.

The firm anticipates that PayPal will continue to see significant gross profit increases in the latter half of the year and forecasts a growth rate exceeding 6% for the fiscal year 2024.

This expectation includes a potential 3-4 percentage points of growth above Wall Street estimates for the third and fourth quarters, driven by a higher take rate and a lower transaction expense (TE) rate.

However, looking ahead to 2025, Jefferies predicts that rate cuts will affect gross profit growth negatively. The contribution from OVAS is expected to shift by approximately 2 percentage points, transitioning from a 110 basis points (bps) boost in 2024 to a 60 bps drag in 2025.

Jefferies’ analysis indicates confidence in PayPal’s ability to outperform expectations in the near term, while also providing a cautious view on the impact of macroeconomic factors such as rate cuts on the company’s performance in the subsequent year. The firm’s reiteration of the Hold rating and price target reflects an expectation of steady performance balanced against potential future headwinds.

In other recent news, PayPal has reported an 11% increase in total payment volume and a 9% rise in revenue on a currency-neutral basis in its second-quarter earnings. Non-GAAP earnings per share also saw a significant 36% year-over-year increase. However, amid uncertain economic conditions, PayPal is expected to cut 2,500 jobs, or 9% of its global workforce.

Goldman Sachs and BMO Capital have maintained their neutral stances on PayPal, while Baird has reaffirmed its Outperform rating. BofA Securities has also held its neutral position, citing potential competition concerns. Meanwhile, Argus Research, Bernstein, and TD Cowen have expressed confidence in PayPal’s future trajectory by upgrading the company’s stock.

In terms of product development, PayPal has introduced Fastlane, a feature designed to streamline online transactions, in partnership with Adyen (AS:). This innovation has reportedly increased guest checkout conversion rates to over 80% and reduced checkout times by 32%. These are recent developments for PayPal.

InvestingPro Insights

In light of Jefferies’ recent analysis on PayPal Holdings Inc. (NASDAQ:PYPL), real-time data from InvestingPro further enriches the financial narrative for the company. With a robust market capitalization of $70.9 billion, PayPal’s financial health is underscored by a Price-to-Earnings (P/E) ratio of 16.66, suggesting that the market values its earnings highly relative to its share price. This is reinforced by an adjusted P/E ratio over the last twelve months as of Q2 2024, which sits at a similar level of 16.17, indicating stability in how investors are valuing the company’s profitability.

An InvestingPro Tip highlights PayPal’s prominence in the Financial Services industry, which aligns with Jefferies’ view of the company’s potential to maintain significant gross profit increases. Additionally, analysts predict the company will be profitable this year, with a revenue growth of 8.66% over the last twelve months as of Q2 2024, showcasing a healthy financial trajectory that could instill confidence in investors.

For those seeking a deeper dive into PayPal’s financials and strategic positioning, InvestingPro offers additional tips that may provide a more nuanced understanding of the company’s prospects. For example, a focus on management’s aggressive share buyback strategy could signal confidence in the company’s future value, an angle not to be overlooked by savvy investors.

For further insights and detailed analysis, readers can refer to the additional 4 InvestingPro Tips available for PayPal at https://www.investing.com/pro/PYPL, offering a comprehensive view that could potentially shape investment decisions.

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