Revenue miss causes PayPal shares to drop premarket.

• On Tuesday, PayPal reported better-than-expected third-quarter earnings, but its revenue fell short of expectations.
• Since Alex Chriss became CEO one year ago, this is his first earnings report at the company.
• PayPal shares have gained 36% this year.

Although third-quarter earnings were better than expected on Tuesday, revenue fell short of expectations. Shares were trading lower premarket.

Based on a survey of analysts by LSEG, here's how the company performed compared to Wall Street estimates.

• Earnings per share: $1.20, adjusted vs. $1.07 expected
• Revenue: $7.85 billion vs. $7.89 billion expected

In the quarter, PayPal's net income was $1.01 billion, or 99 cents per share, which is a 1% decrease from the same period a year ago when it reported $1.02 billion, or 93 cents per share. Meanwhile, revenue increased by about 6% from $7.42 billion in the same period last year.

Since Alex Chriss became CEO of PayPal one year ago, the company's stock has increased by 36% and 42% respectively. Despite facing increased competition and a declining take rate, PayPal has managed to recover from its slump.

Chriss has prioritized profitable growth and monetizing key acquisitions, such as Braintree, which is used by Meta for credit card processing, and payments app Venmo.

The total payment volume for the quarter ended Sept. 30 was $422.6 billion, which represents a 9% increase from the previous year. This figure is slightly above the average analyst estimate of $422.5 billion, indicating that digital payments are performing well in the broader economy, according to StreetAccount.

During the third quarter, PayPal reported impressive financial and operational outcomes, as stated in the earnings release by Chriss.

The company's operating margin exceeded the StreetAccount estimate, while PayPal reported higher total active accounts than expected.

Despite a decrease in PayPal's take rate from 1.91% to 1.86% over the past year, the company's transaction margin increased from 45.4% to 46.6%, indicating the profitability of its core business.

PayPal anticipates "low single-digit growth" for the fourth quarter, which falls short of the analysts' forecast of 5.4% to $8.46 billion. The investor deck reveals that the guidance is driven by a "price-to-value strategy and prioritization of profitable growth."

LSEG reports that the company anticipates earnings per share of $1.07 to $1.11, which is below the average analyst forecast of $1.10.

To tackle the declining profit margin, Chriss implemented a strategy that involved providing merchants with additional value-added services, such as linking a few data points during checkout to reduce cart abandonment rates. This product, known as Fastlane, was launched in August and is a one-click payment option for online sales that can compete with Pay and Shop Pay by Shopify.

In August, Adyen made Fastlane available to U.S. businesses and announced plans to expand the offering globally in the future. The company also partnered with Fiserv, Amazon, Global Payments, and Shopify to grow its share of online checkout.

PayPal Everywhere, which was launched in early September, is the other significant product launch during the quarter. This initiative provides 5% cash back for using a PayPal debit card within the mobile app. As of now, PayPal has recorded 1 million new PayPal debit card enrollments.

Venmo's total payment volume increased by 8% in the quarter compared to the previous year. DoorDash, Starbucks, and Ticketmaster are some of the businesses that now accept Venmo as a payment option for consumers.

Chriss stated in the release that we are making significant advancements in our transformation by introducing new innovations to the market, forming strategic partnerships with prominent commerce players, and increasing awareness and engagement through targeted marketing campaigns.

PayPal will hold an earnings call for analysts at 8 a.m. Eastern time.

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