Can PayPal Get Out of Its Way?

Digital payments technology provider PayPal Holdings Inc. NASDAQ: PYPL reported a strong Q4 2022 earnings report which may be the ticket to breaking out of the year-long weekly descending triangle pattern. PayPal has been losing its luster for the past year as the competition got heavy from Block Inc. NYSE: SQ

$Cash App directly competing with Venmo, Bank of America Co. NYSE: BAC Zelle zero-fee digital payment network, automatic clearing house (ACH) payments, Apple Inc. NASDAQ: AAPL Apple Pay, and Alphabet Inc. NASDAQ: GOOGL Google Pay.

PR Disasters

Horror stories of users having their funds frozen for 180 days without explanation fueled a growing mistrust of PayPal. The infamous $2,500 misinformation penalty PR disaster in which the policy was leaked, denied, and implemented, turned off users and investors. A migration to no-fee money transfer alternatives resulted from resentment over higher fees and mistrust over the safety of funds.

Add in the macroeconomic factors of a weakening economy, rising interest rates, and consumers tightening their spending. It’s no wonder the stock suffered a (-66%) drop in 2022.

Lifting the Clouds

With all the negative sentiment, it was a refresher for bulls when it released its Q4 2022 earnings.

On Feb. 9, 2023, PayPal released its Q4 2022 earnings for December 2022. The Company reported earnings-per-share (EPS) profits of $1.24, beating consensus analyst estimates of  $1.20 by $0.04. Revenues grew 6.7% year-over-year (YoY) to $7.38 billion, falling short of $7.39 billion consensus analyst estimates.

Total payment volume (TPV) grew 5% to $357.4 billion or 5% in constant currency. Its Venmo peer-to-peer payment app TPV rose 3% to $62.5 billion. Payment transactions rose 13% to $6 billion.

The Company added 2.9 million net new active accounts (NNA), up 2%, for 435 million active accounts. The Company also operationalized the reduction of $900 million in the transaction and non-transaction operating expense costs.

Raising the Bar

PayPal issued Q1 2023 EPS guidance of $1.08 to $1.10 versus $1.07 consensus analyst estimates. It sees revenues rising 7.5% or 9% in constant currency versus $7 billion or 8% consensus analyst estimates. The Company raised its full-year 2023 EPS to $4.87 versus $4.76 analyst estimates.

New Milestones

PayPal CEO Dan Schulman announced his retirement at the end of 2023. He commented on the conference call, “In the quarter, we set several new milestones, and we returned to operating margin expansion and positive earnings growth.

For the first time in our history, we exceeded $7 billion of revenue in the quarter, meeting our guidance of 9% FXN growth with revenues of $7.4 billion.” He also noted it was the first time that PayPal exceeded six billion transactions in a quarter, which resulted in 51.4 transactions per active account, up 13% YoY.

The Company grew its non-GAAP operating by 115 bps to 22.9%. The Company has found an incremental $600 million in cost savings on top of the $1.3 billion previously identified, which includes the previously announced 7% workforce reduction. The Board has until the end of the year to find a new CEO for PayPal.

Weekly Descending Triangle Pattern

PYPL weekly chart shows the year-long weekly triangle that started in March 2022 after peaking at $122.81. Shares fell to hit a swing low of $67.58 by June 2022 before staging a rally to $103.03. Shares continued to fall with each bounce making a lower high. This formed the falling trendline as the lows remained around the swing low before bouncing to a lower high.

This is how a descending triangle pattern shapes up. PYPL triggered a market structure low (MSL) breakout at $71.26 after bouncing off a new swing low at $66.39. PYPL bounced to the lower high, falling trendline but broke through it for the first time in nearly a year.

The weekly stochastic is still rising at the 60-band. The weekly 20-period exponential moving average (EMA) resistance attempts to hold support at $81.13. The weekly 50-period MA resistance continues to slope down at $86.30.

While a weekly market structure high (MSH) sell trigger is possible under $78.10, the falling trendline must hold to confirm the breakout from the descending triangle. Pullback support levels are $75.90, $71.26 weekly MSL trigger, $67.58 triangle flat bottom, $62.51, and $57.58.