It also launched new AI partnerships with ChatGPT and Perplexity.
PayPal (NASDAQ:PYPL), the long-time leader in online payments, saw its stock price soar some 13% on Tuesday after it released robust third quarter results and elevated its outlook for the fiscal year.
But beyond and earnings beat and guidance raise, PayPal did something it has never done before as it launched a new dividend program.
- Revenue: $8.4B, up 7% year-over-year. This topped estimates of $8.2B.
- Net income: $1.25B, up 24% year-over-year.
- Operating margin: 18.1%, up from 17.7% in Q3 2024.
- Earnings: $1.30 per share, up 32% from 99 cents per share.
- Adjusted earnings: $1.34 per share, up 12% year-over-year. This beat estimates of $1.21 per share.
In addition, a key metric, transaction margin dollars, which measures operating income, minus various expenses, rose 6% to $3.9 billion. It is used to gauge the economic value generated by activity on the company’s payment platform. However, the transaction margin was down to 46% from 46.6%, indicating more business is coming from lower margin businesses.
Further, the total payment volume (TPV) on PayPal increased 3% to $458 billion, but the take rate, which is the percentage of TPV that PayPal keeps as revenue, dropped to 1.84% from 1.89% a year ago. Again, this reflects a shift to lower-margin services. So, it’s a bit of a mixed result.
Improving outlook
Overall, PayPal had 438 million active accounts in Q3, up from 432 million in the same quarter a year ago. That growth in accounts and payment volume are among the factors that led the company to raise its guidance for fiscal 2025.
The company is now calling for earnings of $5.11 to $5.15 per share, up from the previous range of $4.90 to $5.10 EPS. Adjusted earnings were raised to $5.35 to $5.39 per share, up from $5.15 to $5.30 per share. This would represent 15% adjusted earnings growth.
For Q4, PayPal anticipates earnings of $1.23 to $1.27 per share and adjusted earnings of $1.27 to $1.31 per share. Adjusted earnings would be up about 7% year-over-year.
One new feature that the company believes will drive revenue is its new Agentic Commerce Services, which it introduced Tuesday. Through this new initiative, PayPal, in partnership with Perplexity, will allow merchants to use AI chatbots to shop and pay for things for consumers. PayPal also inked a deal with Open AI to let users of ChatGPT to buy things using PayPal.
We are also building for an agentic future, partnering with leaders such as Google, OpenAI, and Perplexity. This is a stronger company today than we were two years ago. With differentiated competitive advantages, clear strategic direction and building execution momentum, we believe we are exceptionally well-placed to win into the future,” Alex Chriss, PayPal CEO, said.
First time dividend
PayPal was among the first of its kind when it launched in the late 1990s. but until now it has never offered a dividend.
But with improving free cash flows, up 19% in the quarter, PayPal has launched its first-ever dividend program.
Starting in December, it will reward investors with a quarterly dividend of 14 cents per share, at a payout ratio of 10%.
PayPal stock was up about 8% in afternoon trading to $76 per share. It is down 11% YTD but is trading at just 14 times earnings. RBC boosted PayPal price target to $91 per share on Tuesday, up from $88 per share, citing the TPV growth and AI initiatives.
