PayPal posted stronger-than-expected results for the second quarter but saw its shares drop more than 8% as concerns over profitability metrics emerged. While the company surpassed analyst estimates for earnings and revenue, a deceleration in transaction margin dollar growth and weaker cash flow weighed on investor sentiment.
The digital payments company reported adjusted earnings per share of $1.40, beating forecasts of $1.30. Revenue reached $8.29 billion, slightly ahead of the $8.08 billion estimate and up 5% from $7.89 billion a year earlier. CEO Alex Chriss continued to emphasize rolling off lower-margin revenue streams to prioritize more profitable operations.
Transaction margin dollars climbed 7% to $3.84 billion, marking six consecutive quarters of growth. However, this growth decelerated from the prior quarter’s 8% pace when adjusted for one-time benefits. Branded checkout volume also slowed to 5%, compared with an adjusted 6% growth rate in Q1.
PayPal’s operating expenses rose to $6.78 billion, up from $6.26 billion in the previous quarter. Adjusted free cash flow came in significantly below expectations at $656 million, a sharp drop from $1.4 billion in the first quarter. This decline surprised analysts and contributed to the market’s negative reaction.
Despite these setbacks, total payment volume rose to $443.6 billion, surpassing projections of $433.6 billion. Active accounts grew 2% year-over-year to 438 million. Venmo, one of PayPal’s key platforms, saw over 20% revenue growth and a 12% increase in payment volume, marking its strongest performance in three years.
Chriss highlighted the expansion of services like Braintree and Venmo, which are now integrated with major merchants including DoorDash, Starbucks, and Ticketmaster. He emphasized the company’s focus on improving branded payment experiences and expanding its role as a payment service provider.
Looking ahead to the third quarter, PayPal projects adjusted earnings of $1.18 to $1.22 per share, aligning closely with analyst expectations. Transaction margin dollars are forecasted to rise 4% to between $3.76 billion and $3.82 billion. Analysts had anticipated stronger branded checkout growth, driven by e-commerce momentum and broader merchant integration.
For the full year, PayPal now expects adjusted earnings of $5.15 to $5.30 per share, up from a prior forecast of $4.95 to $5.10. Free cash flow is projected between $6 billion and $7 billion. Net income for the quarter was $1.26 billion, or $1.29 per share, up from $1.13 billion, or $1.08 per share, in the same period last year.
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