PayPal’s Outlook Disappoints Days After Loeb Raved About Company

(Bloomberg) -- Dan Loeb's big bet on PayPal Holdings Inc. is off to a rough start. The payments giant projected revenue below analysts' estimates for this quarter and saw Venmo growth continue to slow, causing concern among Wall Street analysts that had been bullish on the app's potential.

PayPal projected third-quarter revenue of $3.62 billion to $3.67 billion, compared with the average analyst estimate of $3.71 billion. The San Jose, California-based company forecasts adjusted earnings per share at 53 cents to 55 cents, about in line with analysts' estimates of 54 cents.

Third Point, Loeb's New York-based hedge fund, recently took a stake in PayPal and told investors that the stock price could reach $125 in the next 18 months, Bloomberg reported on Monday. Third Point didn't disclose the size of the stake, which it acquired in the second quarter.

Last quarter, PayPal had revenue of $3.86 billion, higher than analysts' projections for $3.81 billion. In a sign of its own long-term optimism, PayPal authorized a stock buyback of $10 billion.

Shares of PayPal fell as much as 5.5 percent in extended trading after the results were posted. The stock, which rose more than 80 percent in 2017, has seen momentum slow, with shares rising 24 percent since the start of the year.

Dan Schulman, PayPal's chief executive officer, has been making a big push for more acquisitions. Since its last earnings report in April, the company bought several companies, including Swedish small-business payments service iZettle for $2.2 billion.

Analysts have said the deals are designed to make the business less dependent on EBay Inc. and continue expanding into other parts of the payments industry. EBay, PayPal's former parent company, is shifting much of its payments processing to other providers. On Tuesday, EBay said it plans to add support for Apple Pay in the fall.

Schulman has also been looking for ways to make money from Venmo, an app popular with millennials for exchanging payments with friends. One of the biggest steps is the addition of a Pay With Venmo option at retailers. Bill Ready, PayPal's chief operating officer, recently said that 11 percent of active Venmo users from January to April engaged with the app in a way that could generate revenue for the company.

PayPal doesn't disclose the number of active Venmo users, but growth has been slowing. Transactions on the app totaled $14 billion last quarter, an increase of 78 percent from the same period last year. The growth rate in the quarter before last was 80 percent.

Across PayPal properties in the second quarter, the company handled $139 billion in payment volume, an increase of 29 percent. Adjusted earnings per share was 58 cents, compared with estimates of 57 cents. PayPal expects sales growth this year of 17 percent to 19 percent, or as much as $15.5 billion.

To contact the reporter on this story: Julie Verhage in New York at jverhage2@bloomberg.net

To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Alistair Barr

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