Cramer's Investing Club: PayPal earnings disappoint, putting management's credibility on the line

Published Tue, Feb 1 20229:43 PM EST

PayPal (PYPL) reported disappointing fourth-quarter results after the closing bell Tuesday, and the stock got pummeled, sinking roughly 18% in after-hours trading. Revenue grew 13% YoY to about $6.918 billion and edged the expectation of $6.898 billion, according to FactSet. However, adjusted earnings per-share grew by only 4% YoY to $1.11, missing the consensus forecast of $1.12 as higher than anticipated expenses weighed on the results. The cadence of the quarter sounded uneven, with management noting that October was a strong month for them due to some pull-forward of holiday shopping. However, the back half of the quarter was weaker than anticipated, consistent with the reported decline in seasonally adjusted retail sales and consumer spending in December, due to various factors like the Covid omicron variant, rising inflationary pressures, and a lack of government pandemic stimulus money. Bottom line Clearly, this was a tough fourth-quarter for PayPal and one we are quite disappointed in as we thought management's previous comments suggested the worst was behind them. But we flat out were wrong to hold onto this position and we sincerely apologize to all those who have been hurt by it. We were hurt by it too. As we talked about in Tuesday's Morning Meeting , PayPal is a show-me story and this stock will continue to be stuck in the penalty box for quite some time. A stock's price-to-earnings multiple is as much about the effectiveness of management as it is the company's growth rate — and after multiple quarters in a row of disappointment and lower-than-expected guidance (see more about the outlook later), investors are putting less and less faith in management's forecast ability. Key quarterly metrics Total payment volume (TPV), a closely watched metric in the payments space, increased 23% on an FX-neutral basis to $339.5 billion, a miss versus the $343.6 billion the street was looking Notably, Merchant Services TPV , which is TPV ex-eBay Marketplaces came in at $330 billion, a 28% YoY increase on an FX-neutral basis