PayPal CEO touts turnaround progress as annual profit forecast rises (updated)

PayPal Holdings

Today 11:09

PayPal's third-quarter adjusted operating margin expands
Sets sights on $700 million in cost savings by year-end
Holiday-quarter profit forecast tops Street views
Rewrites headline and paragraph 1 with comments from conference call, adds quotes in paragraphs 4, 8 and 22, adds chart on results; Updates shares in paragraph 7
By Manya Saini
Oct 27 (Reuters) - PayPal PYPL.O CEO Enrique Lores on Tuesday expressed growing confidence in the payments company's years-long turnaround, as cost cuts and expanding margins helped drive a raise in its annual profit forecast.
The company, which became synonymous with digital payments during the pandemic, has struggled to regain investor confidence in recent years amid intensifying competition from Apple, Google and newer fintech rivals.
PayPal has laid out an extensive multi-year plan to streamline operations, cut costs and improve margins to counter these pressures and revive its share price.
"The progress we have seen reinforces our conviction in the strategy. As I look further ahead, I am increasingly confident in PayPal's earnings growth potential," Lores told analysts on a post-earnings call. 
He took the helm earlier this year after the board ousted Alex Chriss over the pace of change and execution. 
PayPal now expects full-year adjusted profit of about $5.60 per share, compared with its previous forecast and analysts' expectations of $5.38, according to estimates compiled by LSEG.
The company's shares were last up more than 1.8%, reversing premarket losses. The stock is down over 80% from its record high in 2021. 
     "What looks good is that PayPal is taking cost out much faster than expected," Evercore ISI analysts wrote in a note. 
     
REVIVAL ON TRACK
The company said it was on track to achieve $700 million in gross run-rate cost savings by the end of 2026, driven by cuts to more than 2,000 jobs and a reduction of over 25% in managerial roles.
Efforts to streamline operations, optimize its portfolio and accelerate AI adoption, including using AI chat agents to support customer service, are also supporting the cost-management efforts, PayPal said.
     The company has set a goal of securing at least $1.5 billion in gross run-rate savings over the next two to three years.
Adjusted operating margin, a key metric for investors, expanded 16 basis points to 18.8% in the third quarter. 
Earlier this year, Reuters reported, citing sources, that PayPal had received a buyout offer of $60.50 per share from Stripe and private equity firm Advent International, a bid that many analysts described as "low-ball."
The offer, which valued PayPal at about $53 billion, was reportedly deemed inadequate by the board and represented a fraction of the roughly $360 billion valuation the company commanded at its peak in 2021.
     
SPENDING ENGINE KEEPS HUMMING
More broadly, US consumers have continued to open their wallets despite economic uncertainty and sticky inflation, helping sustain spending growth across the payments industry.
PayPal's total payment volume grew 7% on a foreign exchange-neutral basis to $487.1 billion in the third quarter. 
The year-end holiday season brings a crucial sales period for the payments sector, as retailers roll out eye-catching discounts and doorbuster deals online and in stores for Black Friday, Cyber Monday and Christmas.
"We do believe that we are entering the holiday season in a better position than we were last year at this time," Chief Financial Officer Jamie Miller told analysts.
PayPal expects adjusted profit in the fourth quarter of about $1.43 per share, above Street expectations of $1.35 and $1.23 a year earlier.        
For the third quarter, adjusted profit came in at $1.45 per share, beating estimates of $1.31. 
Revenue of $8.6 billion in the three months ended September 30 was a tad below estimates of $8.7 billion. 

 (Reporting by Manya Saini in Bengaluru; Editing by Sriraj Kalluvila)
 ((Manya.Saini@thomsonreuters.com; X: manya__saini;))