Michael Kamerman, CEO of Skilling, shares his opinion on what stock you should watch this week.
With companies well into earnings season, this week alone will see 152 of the companies in the S&P 500 report their earnings.
Given the macro-economic climate, these results should reflect a slowing economy. However, PayPal is one company that has been struggling for the past year, even before these market trends came into play.
In fact, PayPal shares lost over 78% of their value from peak to trough, and when their Q4 2021 earnings report was published in February 2022, their shares went down by 25% on the day – wiping $50 billion in market value.
However, investors should consider the impact of higher inflation, consumer spending and supply chain issues on PayPal’s performance. This was also heightened when competitor eBay launched a payment service, in turn taking eBay sellers away from PayPal.
Despite these factors, PayPal is set on improving its profitability. Last month, it was reported that Elliott Management, a firm known for its tough tactics to improve profitability, had taken a stake in the company.
In turn, PayPal expects to reduce costs by $900 million this year, with annualised benefits from the cuts and other changes set to save the company $1.3 billion in 2023. For investors, this focus on capital efficiency will likely see shares rise, up on the 13% already gained on Tuesday after the company posted stronger than expected second-quarter results.
Overall, investors shouldn’t write off the company completely, especially given PayPal has posted better than expected revenue and user growth for Q1 2022. However, they should remember that consumer spending in the post-pandemic age is extremely difficult to predict.
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Not investment advice. Past performance does not guarantee or predict future performance.