Online payments firm PayPal added close to $4 billion to its market value on Thursday following its commitment to streamline operations and turn “leaner” — even after it disclosed a subpoena from the U.S. Securities and Exchange Commission (SEC) related to its stablecoin.
On Thursday, the company's shares closed nearly 7% higher at $55.06. Investors also welcomed a strong full-year profit projection, which alleviated concerns about a potential reduction in spending.
PayPal's new CEO, Alex Chriss, said the company’s “cost base remains too high”, adding that PayPal would direct resources to its “most profitable growth priorities”. Chriss took the helm at the San Jose-based firm at the end of September.
The optimistic forecast reflected consumers' financial resilience, enabling them to maintain their spending habits even as the economic climate in the U.S. remains uncertain.
In recent quarters, PayPal has been grappling with its transaction margins, which have seen some strain due to shifts in the company's business mix.
However, the storyline emerging from the company's third-quarter report seems more focused – at least in the near future. While PayPal continues to address margin issues, analysts appeared to be hooked by the message conveyed by Alex Chriss.
In a comment to Reuters correspondent Niket Nishant on Thursday, J.P. Morgan analyst Tien-tsin Huang said PayPal’s new CEO hit all the right notes in his recent message:
“Chriss struck the right note and articulated well the challenges facing the company and described a sound framework for improving growth and profitability.”
In a note to clients cited by MarketWatch, Baird analyst Colin Sebastian wrote:
“PayPal’s Q3 results were a bit better than expected (mix still an issue), but the highlight was an early taste of new CEO Alex Chriss and what he has in store: faster product development, narrower focus on profitable growth, and operating cost reductions.”
He added that Chriss “appears ready to rock the boat, having already identified operating leverage opportunities, along with strong belief in key strategic goals include reinvesting in the customer experience at checkout, improving and scaling [PayPal Complete Payments for small- and medium-sized businesses], and driving margin expansion in [Braintree] and other products.”
Sebastian’s PayPal stock forecast featured an Outperform rating with a $84 target price, according to the publication. “Despite plentiful risks, we think sentiment is near bottoming out,” he wrote.
Wells Fargo analyst Andrew Bauch was more measured in his PayPal stock forecast:
“Overall, we believe refreshed messaging will lift the multiple enough to offset potential negative estimate revisions near term,” he said in a note cited by MarketWatch on Thursday. “That said, upside potential to shares is a question that we believe will take multiple quarters to solve, particularly after another set of mediocre results.”
Bauch recently began covering PayPal shares with an equal-weight rating and $55 target price.
In premarket trading on Friday, PayPal stock rose 0.64% to $55.41 , as per MarketWatch data. The company’s shares have gained over 9.2% over the past week, but remain close to 22.7% down year-to-date.
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