PayPal’s underwhelming margin overshadows gains from upbeat consumer spending

Aug 2 (Reuters) – PayPal Holdings ( PYPL.O ) missed its second-quarter operating margin estimate on Wednesday, throwing a pall over resilient consumer spending trends, sending the payments company’s shares down nearly 8% in extended trading.

Underwhelming margins at PayPal have worried analysts in recent quarters. The company’s low-margin business products have grown strongly, while growth in its branded products has slowed due to increased pressure from rivals such as Apple ( AAPL.O ).

PayPal’s adjusted operating margin for the quarter came in at 21.4%, missing its forecast of 22%.

Even as inflation shows signs of cooling, macroeconomic pressures have squeezed household budgets this year, especially among lower income groups, weighing on customers’ purchasing power.

U.S. card giants — Mastercard ( MA.N ) and American Express ( AXP.N ) — which are similarly reliant on consumer strength, have also given muted outlooks for the rest of the year amid lingering worries about a looming economic slowdown.

PayPal also expects its adjusted result as of per share for the current quarter will be in a range of $1.22 and $1.24, compared to analyst estimates of $1.22.

In a bright spot, PayPal’s total payment volume rose 11% in the second quarter to $376.5 billion, benefiting from robust consumer spending.

Banking on continued steady use of its platform, PayPal said it expects third-quarter revenue of about $7.4 billion, above analysts’ average estimate of $7.32 billion, according to Refinitiv data.

The company’s revenue rose to $7.3 billion in the second quarter ended June 30, compared with $6.8 billion a year earlier.

The firm earned $1.16 per share on an adjusted basis, in line with Wall Street expectations.

In May, PayPal lowered its annual adjusted operating margin forecast, a move that overshadowed its increase in earnings forecast.

Reporting by Sri Hari NS and Manya Saini in Bengaluru; Editing by Maju Samuel

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