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Globe and Mail
6 minutes ago
- Globe and Mail
PayPal Stock Dropped 9% After Earnings. Is it a Red Flag, or a Buying Opportunity?
Key Points The recent selloff for PayPal stock could be an overreaction, given management's full-year forecast. Some lackluster results in some key metrics should give investors pause before buying. 10 stocks we like better than PayPal › Shares of financial technology (fintech) company PayPal (NASDAQ: PYPL) dropped 9% on July 29 after it reported second-quarter financial results. I believe it was a clear overreaction. Investors seemed to head for the exits after looking at PayPal's second-quarter free cash flow. In Q2, the company generated free cash flow of $692 million, which was down a whopping 49% year over year. That certainly looks troubling. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More » In reality, PayPal had been expecting $6 billion to $7 billion in free cash flow in 2025. After reporting Q2 results, its expectations are unchanged. The 49% Q2 drop is simply a cash-flow timing issue, not a sign of something problematic. Consequently, I believe the 9% drop for PayPal stock was overdone. But is the drop in PayPal stock's price a buying opportunity? That's a question worth exploring. What's going right for PayPal PayPal is a low-growth business at this point with just 5% Q2 revenue growth. Active accounts were only up by 2%. But the company is turning some heads when it comes to profitability. When PayPal hired Chief Executive Officer Alex Chriss in 2023, he immediately took notice of the company's transaction margin. To win large accounts, the company had lowered its prices, particularly when it was working behind the scenes with unbranded checkouts. PayPal has renegotiated some of its top contracts since Chriss' arrival, and it's lifted how much profit it makes per transaction. In Q2, the company's transaction margin dollars increased by 7%, which was notably ahead of its 5% revenue growth. When it comes to the bottom line, it gets even better for PayPal. Management has aggressively bought back stock with its profits, lowering the share count and consequently boosting its earnings per share (EPS). Q2 EPS was up 20% year over year, which is something that shareholders love to see. Since early 2022, the share count for PayPal has steadily dropped, as the chart below shows. PYPL Average Diluted Shares Outstanding (Quarterly) data by YCharts There are some caution flags out PayPal stock dropped 9% after earnings, as mentioned. It's also down 23% from 52-week highs, as of this writing. So, investors want to know if this pullback is a buying opportunity. After considering what's going right, some may be inclined to believe that it is indeed an opportunity. There is more to consider, however. First and foremost, PayPal's user growth has stalled. Active accounts were only up 2% in Q2. But more troubling was the 4% drop in transactions per active account on a trailing-12-month basis. The downward trend started in the first quarter, when transactions per account had dropped by 1% (after years of increases), but it looks like it's picking up steam now. With account growth stalling and transactions dropping, PayPal doesn't offer much to investors when it comes to revenue growth. That's why these are caution flags -- stocks that outperform the S&P 500 usually have above-average top-line growth. What's the verdict? While PayPal's recent growth leaves a lot to be desired, better growth could be around the corner. For starters, PayPal owns Venmo, and it accounts for 18% of the company's total payment volume -- a meaningful amount. Venmo's growth has accelerated in recent quarters. In the second quarter of 2024, Venmo's volume was only up 8% but it was up by 12% in Q2. This acceleration is promising. Moreover, PayPal just announced PayPal World, a partnership that will allow for interoperability with major digital wallets worldwide. Early joiners include Latin America's MercadoLibre and China's Tencent. This partnership could boost PayPal's adoption, but investors won't know for sure until after it officially launches this fall. For me, the verdict is that PayPal stock is a buy, with a caveat. The caveat is that I don't believe the company's current growth can lift the stock above the S&P 500 over the next five years. Shareholders need some of its growth initiatives to pay off. However, PayPal stock is low-risk. Its scale is vast, it's generating substantial free cash flow, and it's boosting shareholder value with stock buybacks. Even if growth continues to sputter, the company's EPS should increase modestly, lifting the shares. Because PayPal stock is down significantly from its 52-week high, there's a margin of safety with this investment. In conclusion, if things go as they are now, there may be little downside for investors. And if things get better due to things such as Venmo's growth, then it could be a market-beating investment. Should you invest $1,000 in PayPal right now? Before you buy stock in PayPal, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PayPal wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $625,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,090,257!* Now, it's worth noting Stock Advisor's total average return is 1,036% — a market-crushing outperformance compared to 181% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 29, 2025
CBC
17 minutes ago
- CBC
Canada says no deal is better than a bad one
Aug. 1, 2025 | Canada's federal government insists it won't accept a bad trade deal from the U.S. Plus, cracks in the U.S. economy emerge and U.S. President Donald Trump lashes out as well as Canada's staycation summer.
Canada News.Net
18 minutes ago
- Canada News.Net
Economic Watch: Trump's sweeping new tariffs spark extensive criticism
U.S. President Donald Trump imposed sweeping new tariffs on 69 trading partners, sparking global criticism over economic disruption and sovereignty concerns. WASHINGTON, Aug. 2 (Xinhua) -- U.S. President Donald Trump on Thursday signed an executive order that further modified tariff rates with 69 trading partners, drawing criticism across the world. The order, set to be implemented on Aug. 7, imposes "additional ad valorem duties on goods of certain trading partners," with rates ranging from 10 percent to 40 percent. SWEEPING TARIFFS Under the new executive order, the "universal" tariff for goods entering the United States will remain at 10 percent, the same rate implemented on April 2. However, the 10-percent rate will only apply to countries with which the United States has a trade surplus, CNN reported, citing a senior official. For countries with which the United States has a trade deficit, a 15-percent rate will serve as the new tariff floor. Still, for more than a dozen other countries, the tariff rates are higher than 15 percent, either because they agreed to a trade framework with the United States or because Trump sent their leaders a letter requiring a higher tariff, it added. On Thursday, Trump signed an executive order increasing the tariff on Canada from 25 percent to 35 percent, with the higher tariff taking effect on Aug. 1. Goods qualifying for preferential tariff treatment under the United States-Mexico-Canada Agreement will continue to remain exempt from the new tariffs. Goods transshipped to evade the 35-percent tariff will be subject, instead, to a transshipment tariff of 40 percent. On Wednesday, Trump signed an executive order implementing an additional 40-percent tariff on Brazilian goods, bringing the total tariff amount to 50 percent. On the same day, Trump announced that Washington had reached a "full and complete" trade deal with South Korea, setting 15-percent tariffs on its exports. South Korea has also agreed to invest 350 billion U.S. dollars in projects "owned and controlled by the United States," and selected by himself, Trump said. Trump said on Wednesday that the United States would impose a 25-percent tariff on imports from India, starting on Aug. 1. On July 27, Trump and European Commission President Ursula von der Leyen announced that they had reached a trade deal under which the United States would impose a baseline tariff of 15 percent on EU goods. The deal allows the United States to impose a broad 15-percent tariff on EU goods while securing zero-tariff access for a range of strategic American exports. In contrast, the EU has pledged to purchase 750 billion U.S. dollars' worth of American energy and commit an additional 600 billion U.S. dollars in investments in the United States. WIDE CRITICISM The higher tariffs continue Trump's reversal of the decades of globalization that made America's massive services economy the envy of the world but contributed to its long decline in manufacturing, CNN commented. "Our businesses ... need some degree of certainty, and all they're getting is chaos and inflation. So the Trump tariff trade war is a trade war on the American people. We've seen this week the chaos and uncertainty," said Chuck Schumer, Senate Democratic leader. Canadian Prime Minister Mark Carney said in a statement on Friday that his government is disappointed by Trump's decision to increase the tariff on Canadian goods to 35 percent. According to the statement, the sectors of lumber, steel, aluminum and automobiles are heavily impacted by U.S. duties and tariffs. The Canadian government will act to protect Canadian jobs, invest in industrial competitiveness, buy Canadian and diversify export markets, said Carney. Brazilian Finance Minister Fernando Haddad said his government will soon announce a response plan focused on providing financing assistance, deferring tax payments, accelerating export tax refunds, and reactivating labor protection policies. Bernd Lange, chair of the European Parliament's Committee on International Trade, slammed the U.S.-EU deal as "significantly imbalanced." In a statement following the announcement of the agreement, he said that "concessions have been made that are difficult to bear." The trade agreement is "a political, economic and moral fiasco," Marine Le Pen, leader of the far-right National Rally party in the French parliament, said in an X post. "Hundreds of billions of euros of gas, as well as weapons, will have to be imported each year from the United States. This is a complete capitulation for French industry, and for our energy and military sovereignty," she said. "I don't think Trump wants a trade deal. He wants these countries to surrender their economic sovereignty," said Sizo Nkala, senior research fellow at the Center for Africa-China Studies, University of Johannesburg. "More than anything, the tariff rates represent an assault on and a violation of a rules-based multilateral trading system administered by the World Trade Organization," Nkala said.
