PayPal Jumps As Elliott Management Says It Has $2 Billion In The Financial Services Company

Dan Shulman, President and CEO of PayPal Holdings Inc. , to attend the morning session of the Allen & Co. Conference. Media & Technology in Sun Valley, Idaho, US, on Wednesday, July 10, 2019. The 36th annual event brings together many of the richest and most powerful Americans in media, technology and sports.

Patrick T. Fallon | Bloomberg | Getty Images

PayPal shares rose as much as 13% in extended trading Tuesday after the financial services company released stronger-than-expected second-quarter results. During its earnings presentation, PayPal said it had entered into an information-sharing agreement on value creation with Elliott Management.

“As one of PayPal’s largest investors, with approximately $2 billion in investments, Elliott believes strongly in PayPal’s value proposition,” Jesse Cohn, Elliott’s Managing Partner, was quoted as saying in the earnings presentation. “Paypal has an unparalleled footprint and industry leader across its payments business, and it has a right to win in the short and long term.”

The news comes a day after Elliott announced that she had become the largest investor in social network operator Pinterest.

Here’s what PayPal did in the second quarter:

  • gains: 93 cents a share, adjusted, versus 86 cents a share, as expected by analysts, according to Refinitiv.
  • he won: $6.81 billion, versus the $6.79 billion analysts had expected, according to Refinitiv.

Revenue grew 9% year over year, but the company posted a net loss of $341 million, compared to a profit of $1.18 billion during the same period last year. At the end of the quarter, PayPal had 429 million active accounts, up 6% year over year but below the consensus of 432.8 million analysts polled by StreetAccount.

The company confirmed its progress in capital efficiency. It expects to cut costs by $900 million this year, and said annual benefits from the cuts and other changes will save at least $1.3 billion in 2023.

“We have a lot of bosses. We can be more productive,” chief analyst Dan Schulman said on a conference call.

PayPal has announced a new $15 billion share buyback program, four years after launching a $10 billion program.

Shulman said the company is holding back in some areas, including stock trading, and said it will focus on in-store cards rather than focusing exclusively on QR codes. He said the company is exploring interoperability between PayPal and the payment app Venmo.

The company said it had “a commitment to work with Elliott Investment Management LP to conduct a comprehensive evaluation of its return on capital alternatives.” The Wall Street Journal reported in July that Elliott has taken up a position at PayPal.

“Our discussions focus on operational improvements, income-producing investments, and capital allocation, and they are aligned with our short- and long-term goals and plans,” Schulman said.

PayPal said it is looking for a successor to Mark Brito, its chief product manager for the past two years. Brito will retire later this year.

For the full year, PayPal said it expects $3.87 to $3.97 in adjusted earnings per share, up from the $3.81 to $3.93 range it provided in April. Analysts polled by Refinitiv expected $3.82 per share.

During the second quarter, primarily thanks to Venmo’s growth, PayPal added about 400,000 new active accounts, or NNAs. In the first quarter, PayPal reported 2.4 million NNAs, for a total of about 2.8 million in the first half of 2022. It said it still intends to add 10 million NNAs for the full year.

“However, as with all of our forecasts, NNA growth could be affected by broader economic factors, as channels that drive organic customer acquisition may be negatively affected by waning consumer sentiment and lower demand for discretionary goods,” said Shulman.

PayPal shares are down more than 52% since the start of the year.

Watch: American Express or PayPal may be potential suitors for Affirm, says MoffettNathanson’s Lisa Ellis.

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