PayPal falls after earnings beat estimates but 3rd-quarter guidance disappoints

• PayPal shares declined Thursday as third-quarter revenue guidance fell short of expectations.
• PayPal said eBay's payments moving off its platform is happening faster than anticipated, dampening its outlook.
• PayPal's second-quarter adjusted earnings of $1.15 share beat expectations of $1.12 a share.

PayPal shares dropped Thursday after third-quarter revenue guidance fell short of expectations as a plan for eBay to migrate its payments off PayPal's platform is moving faster than anticipated.

PayPal had been processing the online auction company's payments following eBay's spinoff of PayPal in 2015. A five-year agreement for such action ended in July 2020. PayPal said late Wednesday it now expects third-quarter revenue of $6.15 billion to $6.25 billion, including a potential "drag" of $465 million from the eBay migration. That outlook is below the $6.45 billion consensus estimate.

PayPal sees an "accelerated pace of merchant migration in international markets, as well as some additional core pressure, which magnifies this result," the company said during its earnings call late Wednesday.

The stock fell 5% during Thursday's session and was down by as much as 6.7% to $281.60. The shares fell by more than 5% late Wednesday.

The pullback presents "an attractive opportunity," Bank of America analyst Jason Kupferberg said in a research note Thursday reiterating its buy rating on PayPal. He said core underlying trends for PayPal remain robust, including second-quarter revenue growing by 32% year-over-year excluding eBay.

"We view the accelerated pace of eBay migration positively, as this headwind will be largely behind PYPL sooner than anticipated," he wrote.

For the second quarter, adjusted earnings of $1.15 a share beat the estimate of $1.12 a share from a Refinitiv survey of analysts. PayPal's total revenue climbed to $6.24 billion from $5.26 billion a year earlier but was slightly below the $6.27 billion consensus estimate.

During the second quarter, PayPal added 11.4 million net new active accounts, pushing up active accounts to 403 million. It backed its guidance of adding 52 million to 55 million new active accounts in fiscal year 2021.

So far this year, PalPay shares have gained about 23% and have nearly doubled over the past 12 months.