PayPal Stock Jumps After Earnings as CEO Leaves Sale Option Open

PayPal stock rose to a multi-month high near $58.60 after stronger second-quarter results.

PYPL had gained about 51% from its year-to-date low before Tuesday’s session. The stock also approached Stripe and Advent International’s reported $60.50-per-share offer.

PayPal Chief Executive Officer Enrique Lores did not endorse the proposal. However, he said the board would objectively assess alternatives offering greater shareholder value.

The comments and improved guidance supported PayPal stock during Tuesday trading.

PayPal Published Strong Earnings and Guidance

In a statement today, PayPal said that its slow revenue growth continued last quarter. Its revenue rose 5% to $8.7 billion, beating analysts’ expectations.

This revenue growth happened as the total payment volume soared by 10% to $486 billion. Its transaction margin rose modestly to $3.9 billion, while its earnings per share dropped slightly to $1.38.

However, the company had some major drawbacks. For one, its number of active accounts has stalled at 439 million, while the active accounts rose by just 1%. Also, the number of transactions per active account rose by just 3%.

Another challenge was that, while its revenue was higher than expected, it was much lower than what other companies are reporting. A recent FactSet report showed that the S&P 500 Index is having one of its best years, with average earnings growth of over 37%.

PayPal also boosted its forward guidance. It now expects its transaction margin in the third quarter to be slightly positive, with EPS growth in the low single digits.

CEO Open to a PayPal Sale

PayPal stock rose after the CEO made his first statement about the recent takeover offer from Stripe and Advent International. In his statement, Enrique Lores, the recently appointed CEO, said that he was open to opportunities that create value for investors.

PayPal has some options ahead. It can decide to accept the Stripe offer outright, a move that would be criticized by its shareholders. On the other hand, the company can decide to push Stripe and Advent to boost the buyout price.

Alternatively, he could put the company on sale and attract more bids from other companies. Such a move would boost the stock as other suitors emerge. Besides, PayPal is a large company with over 439 million customers and is one of the most undervalued firms. It has a forward price-to-earnings ratio of 10, lower than the technology sector median of 24. This valuation multiple is also much lower than the five-year average of 25.

In other words, a company that buys PayPal will take less than 10 years to breakeven assuming it experiences no growth. At the same time, the company has over $8.3 billion in cash and cash equivalents and $2.9 billion in short-term investments. It also has over $4 billion in long-term investments. On the liabilities side, the company has $10 billion in long-term debt.

Also, there are ways for a potential acquirer to realize value. They can spin off Venmo, which has now become its crown jewel, into a separate company. Also, it can spin off some of its other consumer products.

PayPal Stock Price Technical Analysis

Technicals point to more gains over time. It has formed a double-bottom pattern at $40.45, its lowest level in February and June this year.

The stock has now moved above the $52.20 neckline, its highest point in May this year. It has also jumped above the 50-day Exponential Moving Average (EMA).

PYPL stock has moved above the Supertrend indicator, a bullish technical signal. Therefore, the stock will likely continue rising as bulls hope for a bidding war in the near term. If this happens, the next key level to watch will be at $70, up by about 21% from the current level.