PayPal Transaction Margins and Payment Volume Drive Growth, Eyes 2025 Growth With Strong TMD Ahead of Investor Day: Analyst

JP Morgan analyst Tien-tsin Huang maintained an Overweight rating on PayPal Holdings, Inc (NASDAQ: PYPL ).

PayPal’s fourth-quarter revenue growth of 4% was slightly ahead of JP Morgan and Street expectations and guidance (low-single-digit). The key transaction margin dollar metric was also ahead, up 7% versus JP Morgan and Street estimates of +4% and +3%.

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Gross yields were about in line with expectations, with a transaction take rate of 1.73% versus the JP Morgan and Street estimates of 1.74% and 1.73%. Total Payments Volume (TPV) was up 7% (JP Morgan and Street estimate of +6% and 7%), including Brand volume up 6% foreign-exchange neutral (JP Morgan estimate +7%), stable from last quarter despite accelerating market growth (though management noted that the U.S. did accelerate).

The Payment Service Provider (PSP) volume was +2% (JP Morgan estimate +3%), decelerating 9ppts sequentially. This was driven by PayPal’s price-to-value strategy, which is accretive to target market determination (TMD) growth.

The fourth-quarter non-transaction expenses increased 10% (JP Morgan and Street estimates +12% and 7%) on marketing investments, driving margins down ~30bps for adjusted EPS of $1.19 (JP Morgan and Street estimates of $1.12 and $1.13), up 5% versus guidance calling for low to mid-single-digit declines.

The fiscal 2025 outlook calls for 4%-5% TMD growth versus JP Morgan and Street estimates at 3% and 4% growth; excluding float income, TMD is expected to be up at least 5% (JP Morgan estimates +4.5%), in line with preliminary view given last quarter that growth should be at least fiscal 2024 levels (5%).

Non-transaction operating expenditure will likely grow low-single digits, while tax was guided to 23%-24% (JP Morgan and Street estimates 23% and 22%) for adjusted EPS up 6%-10% (JP Morgan and Street estimates +7%). FCF guided to $6 billion-$7 billion, bracketing JP Morgan and Street estimates.

First-quarter guidance calls for 4%- 5% TMD growth (prior JP Morgan and Street estimates 2% and 4%), implying minimal acceleration through the year on a reported basis, likely due to float. Adjusted EPS is up 6%- 8%, ahead of prior JP Morgan and Street estimates of 6%.

Huang’s expected stock reaction pre-call is lean negative, balancing a healthy TMD and EPS beat but sequentially stable Branded growth, a fiscal 2025 outlook slightly ahead of consensus, and PayPal stock up 12% since last earnings (S&P 500 +3%). PayPal’s next catalyst is the February 25 Investor Day.