PayPal Q4: Progress, but Concerns Linger

Here's our initial take on PayPal's (NASDAQ: PYPL) fourth-quarter results.

Key Metrics

PayPal in Stable Growth Mode, but Some Concerns Linger

PayPal's fourth-quarter results looked a lot like what we saw in Q3, with modest revenue growth, continued growth in active accounts albeit at a pretty low rate, and an increase in transactions per active account. In other words, the focus on products for which there is potential for growth and potential to grow user engagement seems to be working.

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Part of what's helping drive PayPal's modest user growth is marketing, an area in which the company has committed to spending more money. Q4 sales and marketing expense was up more than 34%, and it was 10.1% higher for the full fiscal year, along with higher general and administrative expenses.

Combined with higher restructuring expenses in the quarter and the year, PayPal's operating income fell, though the bottom-line results were still well within both investors' and management's expectations heading into the end of the quarter. There were also some timing-related impacts to cash flow tied to PayPal's origination of buy now, pay later (BNPL) loans that it sells to KKR (NYSE: KKR).

In summary, the key things that PayPal CEO Alex Chriss has made the core priorities -- focusing on core markets and products and being more disciplined on expenses while spending to market -- are more or less paying off with improved results and relatively positive, if modest, trends.

Immediate Market Reaction

As of this writing, prior to market open and in the early minutes of management's call with investors, PayPal shares are down more than 8%. The company's guidance for the first quarter of fiscal 2025 calls for similar growth as it has reported in recent quarters, with 4% to 5% transaction margin dollar growth. Management also foresees GAAP earnings per share of $1.12 at the midpoint of guidance, up from $0.83 in last year's first quarter.

There are lingering questions about PayPal's ability to maintain some of the payments relationships it has at Braintree, its payment processing subsidiary, which reported lower total payment transactions in the fourth quarter. The company says this is part of its strategy that focuses on value versus price. But it's clear that investors are concerned that there could be another headwind to PayPal's turnaround brewing in its unbranded card processing business.

What to Watch

PayPal's guidance calls for more of the same modest growth we have seen over recent quarters along with strengthening cash flows and a "lapping" of some of last year's higher expenses related to the company's restructuring. That should result in accelerated bottom-line growth. However, there are questions about the unbranded payments processing business and the company's ability to retain customers, including Uber (NYSE: UBER) and Spotify (NYSE: SPOT). Overall, CEO Chriss' efforts are paying off, but it seems Mr. Market isn't completely convinced that the PayPal turnaround is complete.

Helpful Resources

• Earnings press release and presentation
• Investor relations page
• Additional coverage: third-quarter earnings take

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The Motley Fool has positions in and recommends KKR, PayPal, Spotify Technology, and Uber Technologies. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.