- PayPal stock surged as much as 14% on Wednesday after the fintech reported better-than-expected 2nd-quarter earnings.
- PayPal management also announced the launch of a massive $15 billion stock buyback program.
- PayPal entered an information sharing pact with activist investor Elliot Management after they took a $2 billions take in the payments processor.
From an earnings beat to an activist stake, a slew of good news sent shares of PayPal soaring as much as 14% on Wednesday.
The payments processor announced better-than-expected second-quarter earnings after the market close on Tuesday, as total payment volume grew 9% to $340 billion in the quarter.
Here were the key numbers:
Revenue: $6.8 billion, versus analyst estimates of $6.78 billion
Adjusted EPS: $0.93, versus analyst estimates of $0.86
FY 2022 EPS guidance: $3.87 to $3.97, versus analyst estimates of $3.85
"We continue to gain share as we execute across our key strategic initiatives, even as we drive operational efficiency across our business," PayPal CEO Dan Schulman said.
Those efficiencies hint at PayPal's quest to lower its operating costs, and the company said it expects to save $900 million in expenses this year, and $1.3 billion next year.
Those cost-savings are coming from PayPal's servicing, marketing, and engineering divisions. The cost cuts are one reason why PayPal decided to abandon its previously announced initiative of launching a stock trading feature on its app.
Also helping boost PayPal stock on Wednesday was the company's decision to launch a $15 billion share buyback program, which represents about 15% of the company's current $100 billion market cap. Stock repurchases in 2022 are expected to be $4 billion, of which the rest of the stock buybacks would spill over into next year and beyond.
PayPal's more than 70% stock decline over the past year attracted the attention of activist investor Elliot Management, which now owns a $2 billion stake in the company and is one of its largest shareholders. Both Elliot and PayPal have entered an information sharing pact and are working together to create value for shareholders.
Bank of America, which rates PayPal at Neutral, offered the following comments in a Wednesday note on PayPal's earnings results and its agreement with Elliot.
"This year, 75-80% of FCF will now be allocated to buybacks, and PYPL is planning an Analyst Day in 1Q23 to discuss its medium-term capital deployment strategy, which we suspect could include the introduction of a dividend, given the strength of PYPL's FCF profile. We think PYPL has to be careful to not take their eye off the ball on growth as they partner with Elliott, particularly on the cost side. We believe M&A of any substantial size is likely off the table for the foreseeable future," BofA said.
