PayPal Being Shy of Extra Bullish Expectations, Still Offers Double-Digit Growth Opportunity

PayPal (PYPL) reported Q3 2021 revenue growth of 13% and said it's teaming up with Amazon.com (AMZN) to allow its U.S. customers to pay with Venmo at checkout, beginning 2022. The shares rose over 6% in after-hours trading, despite rolling back a bit on today’s premarket, weighed by slightly softer company guidance for the remainder of the year on economic concerns.

Adjusted earnings per share came in at $1.11, vs. $1.07 expected, while revenue held at $6.18 billion vs. $6.23 billion projected. Total e-payment volume rose 26% to $310 billion for the quarter, and the company added 13.3 million net new active accounts, bringing the total to 416, PayPal said in a statement.

PayPal's Venmo app, which began supporting cryptocurrency services in April, saw payment volume jump 36% to $60 billion. Starting next year, customers will be able to make purchases on Amazon.com and the Amazon mobile shopping App using their Venmo accounts.

The deal with Amazon comes as PayPal prepares to further distance itself from its former host eBay (EBAY) – now apparently facing harsh competition from Alibaba (BABA) and the likes. Six years after the companies parted again, eBay is in the process of transitioning sellers off PayPal and onto its own payment system. PayPal said volume on eBay marketplaces dropped 45% in the quarter and now represents less than 4% of revenue.

Key points for PYPL now include an open possibility of Pinterest (PINS) acquisition, but PayPal underpins its ''responsibility'' before shareholders to consider value creation in this deal. PayPal generates over 20 cents of free cash flow on each dollar of its revenue. PYPL is estimated to make $6.1 billion of free cash flow in 2022, and it is expected to grow at 18% CAGR into next year. PayPal reminds investors of its adherence to growing to $50 billion in revenues by 2025.

The main question for PayPal emerges as to how the company is going to please shareholders against its one-off super-strong H1 2021 going forward.