Adjusted earnings of $1.45 a share topped the $1.31 analysts expected, and PayPal now sees about $5.60 for the year. Revenue of $8.58 billion fell short. About $1.1 billion of the profit measure it guides on comes from interest on customer balances.
PayPal's earnings are growing faster than its revenue, and the business investors watch most closely is barely growing at all.
The payments company reported adjusted earnings of $1.45 a share for the third quarter, above the $1.31 analysts expected, according to S&P Global. Revenue was $8.58 billion, about 1.4% below the $8.71 billion estimate.
PayPal raised its full-year adjusted earnings forecast to about $5.60 a share from $5.38. It expects transaction margin dollars, its main measure of gross profit, of about $15.7 billion this year, or $14.6 billion excluding interest earned on customer balances. It expects adjusted free cash flow of at least $6.5 billion and share buybacks of about $6 billion.
The shares rose 1.5% to $55.79 at about 1:46 p.m. Eastern.
The checkout question
Total payment volume through branded checkout, the PayPal button that customers choose at online stores, grew 1% to 2%. Growth at that pace may suggest the earnings gains are coming mostly from elsewhere, such as cost control and buybacks.
Interest income
The guidance also shows how much PayPal earns from the money customers leave in their accounts. The difference between the two transaction-margin figures, about $1.1 billion, is interest on customer balances, roughly 7% of the total. That income rises and falls with short-term rates. A Fed that is still raising rates supports it; a turn toward cuts would not.
Two readings
One reading is that PayPal is executing well on what it controls. Earnings beat comfortably, the forecast went up about 4%, cash flow is strong and buybacks are shrinking the share count.
The other is that the core engine is not accelerating. Revenue missed, branded checkout grew only 1% to 2%, and part of the profit depends on interest rates that the company does not control.
What to watch
Branded checkout growth in the holiday quarter, transaction margin dollars excluding interest, the pace of buybacks and the Fed's decision on Wednesday.