PayPal Holdings Inc. (NASDAQ:PYPL) reported better-than-expected third-quarter earnings Tuesday, supported by improving margins, resilient consumer spending and cost reductions, although revenue fell short of Wall Street expectations.
Following the results, the stock is trading nearly 2% lower.
The payments company, which owns Venmo, reported revenue of $8.58 billion, up 2% from a year earlier but below the analyst consensus estimate of $8.71 billion. Adjusted earnings were $1.45 per share, beating expectations of $1.31.
Payment Volume Growth Remains Strong
Total payment volume rose 6% year over year to $487.1 billion, while payment transactions increased 7% to 6.8 billion.
Transactions per active account rose 6% to 60.8 on a trailing 12-month basis.
Transaction margin dollars increased to $3.95 billion, exceeding the $3.89 billion consensus estimate, Bloomberg reported.
Active accounts rose 0.6% from a year earlier to 440 million, an increase of 1.6 million from the previous quarter.
Cost Cuts Support Turnaround
Profitability remained under pressure. Operating margin narrowed 173 basis points to 16.3%, while adjusted operating margin was little changed at 18.8%.
CEO Enrique Lores said, "We are making good progress in our multi-year transformation."
PayPal said it remains on track to achieve $700 million in gross run-rate cost savings by the end of 2026, driven partly by more than 2,000 job cuts and a reduction of more than 25% in managerial roles.
The company is also streamlining operations, optimizing its portfolio and expanding its use of artificial intelligence, including AI-powered customer service agents.
PayPal aims to generate at least $1.5 billion in gross run-rate savings over the next two to three years.
The company generated $1.59 billion in operating cash flow, $1.43 billion in free cash flow and $2.05 billion in adjusted free cash flow during the quarter.
As of Sept. 30, PayPal held $15.1 billion in cash, cash equivalents and investments, compared with $14.8 billion at the end of 2025.
The board declared a quarterly dividend of 14 cents per share, payable Dec. 24.
PayPal also returned $1.5 billion to shareholders through the repurchase of about 28 million shares during the quarter.
Resilient Consumer Spending Supports Growth
PayPal benefited from steady consumer spending despite economic uncertainty and persistent inflation.
The company is also expanding beyond its traditional checkout business and targeting higher-value consumers as it seeks to diversify revenue sources and strengthen long-term growth.
Competition and Strategic Changes Remain in Focus
PayPal continues to face stiff competition from Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOG) Google and emerging financial technology companies as it seeks to regain momentum following its pandemic-era growth surge, Reuters reported Tuesday.
The company has also undergone a CEO transition and restructuring while attracting takeover interest.
A reported bid from Stripe and Advent International valued PayPal at about $53 billion, but the board considered the offer inadequate.
PayPal Raises 2026 Earnings Outlook
PayPal expects fourth-quarter adjusted earnings of about $1.43 per share, above the analyst consensus estimate of $1.35.
The company also raised its full-year 2026 adjusted earnings forecast to about $5.60 per share, up from its previous outlook of about $5.38.
Analysts expect full-year adjusted earnings of $5.39 per share.
PYPL Stock Price Action
PYPL Price Action: PayPal Holdings shares were down 1.98% at $53.90 during premarket trading on Tuesday, according to Benzinga Pro data.