Paypal Shares Rise After Elliott Management Takes $2 Billion Stake in Company

Ticker Symbol: PYPL

Paypal shares were last trading up 11% in the after-market-close trading session as investors cheered activist investor Elliott management taking a $2 billion position in the financial technology firm. The company also reported second-quarter results that broadly beat estimates. Shares were last changing hands at $99.70, down roughly 50% on a year-to-date basis, and lagging the S&P Index by 34%.

Despite the lagging performance, Elliott’s position in the company could provide a lift to investor sentiment. Given the positive changes the activist’s stakes have brought about in other companies, such as Alcoa, NXP Semiconductors, and Twitter, investors could be hoping that the addition of a strong independent voice could lead to greater value creation at Paypal.

The company, an operator of the famous Venmo app, reported adjusted earnings per share of 93 cents versus the consensus estimate of 86 cents. Revenue also beat Wall Street expectations of $6.78 billion, rising 9% year over year to $6.81 billion. On a more downbeat note, however, Paypal reported 429 million monthly active accounts, lower than the 433 million estimated by analysts. Active users did grow at a 6% annual rate, and management said it expected the number to improve in the second half of the year.

Management also reported that the board of the company approved a $15 billion share buyback program. Furthermore, the company expects to reduce costs by roughly $900 million this year and stated that optimization in other areas should allow it to save $1.3 billion on an annualized basis starting in 2023. Chief Executive Officer Dan Schulman said that he expects employees to become more productive and management does not see the need to carry out companywide layoffs for the time being.

Paypal said it added 400,000 net new active accounts during the quarter, lower than the 2.4 million new accounts in the first quarter. But management reiterated its goal that it could add a total of 10 million new accounts for the year, implying that it would add roughly 7 million in the last six months of the year. CEO Schulman did note the broader economic slowdown affecting all companies and that reduced demand for discretionary goods and poor consumer sentiment could affect the company’s targets going forward.

For the full fiscal year, Paypal said it expects adjusted earnings per share to be between $3.87 and $3.97, higher at its midpoint than the $3.83 per share that analysts were hoping for. The company is also slowing spending on certain product categories, such as stock trading, instead choosing to focus on card-in-stores and increasing the interoperability between the Paypal and Venmo payment apps for the rest of the year.

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