Shares of PayPal Holdings Inc. dropped more than 7% today after it posted strong quarterly earnings, but underperformed across several closely watched metrics.
The company generated $8.29 billion in revenue during the three months ended June 30. That represents a 5% improvement over last year. It’s also above the consensus estimate, which projected second quarter sales of $8.08 billion.
PayPal’s revenue comes from not only its flagship payment processing platform but also a broad portfolio of other financial technology services. For consumers, it offers physical credit cards and a savings tool. For businesses, PayPal provides working capital loans and an in-store payment terminal that doubles as an inventory management system.
The rest of the company’s revenue comes from several large business units that operate under their own brands. One of them, Venmo, operates a payment processing app that is similar to PayPal but focuses solely on consumers. The company’s Braintree unit, in turn, offers a payment processing platform for large enterprises.
Venmo was one of the main drivers behind PayPal’s better-than-expected quarterly sales growth. The company disclosed that revenue from the service grew 20% on a year-over-year basis. Payment volume, or the combined value of the transactions processed using Venmo, rose 12%.
User base growth also factored into PayPal’s revenue jump. The number of active PayPal accounts rose 2% in the second quarter to 438 million, slightly more than the 437.8 million projected by analysts.
The company’s sales growth had a positive effect on its bottom line. PayPal generated $1.26 billion in net income during the second quarter, which translated into adjusted earnings of $1.4 per share. Analysts had anticipated $1.3 per share.
“We delivered another quarter of profitable growth, driven by continued strength across many of our strategic initiatives ranging from PayPal and Venmo branded experiences to PSP and value-added services,” said PayPal Chief Executive Officer Alex Chriss.
But while the company’s headline numbers topped the consensus estimate, it missed expectations across other metrics. PayPal logged adjusted free cash flow of $656 million in the second quarter, well below the $1.4 billion that the market had projected. Transaction margin dollars, or the profit that company generates from the transactions it processes, grew at a more sluggish pace than in the first quarter.
Despite the slowdown, the company upgraded its adjusted earnings guidance for the full year. PayPal now expects to generated $5.15 to $5.30 per share in fiscal 2025, up from $4.95 to $5.10 before.
The company’s strategy for maintaining its growth places an emphasis on new service launches. PayPal debuted the latest addition to its product portfolio, Pay with Crypto, on Monday. It enables companies to accept more than 100 cryptocurrencies from online shoppers.
