Why did earnings beat expectations despite a revenue miss?

  • In the third quarter of 2026, PayPal's revenue was approximately 8.58 billion dollars, about 1% below the Visible Alpha market consensus of approximately 8.71 billion dollars; transaction revenue and other value-added services revenue were each also about 1% below consensus.
  • Profitability was stronger: transaction margin dollars were approximately 3.95 billion dollars, 2% above consensus; non-GAAP operating income was approximately 1.61 billion dollars, 14% above market expectations. Non-GAAP operating expenses excluding transaction expenses were approximately 2.34 billion dollars, below market expectations of 2.42 billion dollars.
  • Adjusted earnings per share were 1.45 dollars, about 11% above consensus. But Goldman Sachs noted that some of the beat came from cost savings realized ahead of schedule; a timing mismatch between savings and reinvestment could leave operating expense growth at a higher level during 2027.

Why did the market welcome the 2027 outlook?

  • Management expects full-year 2027 non-GAAP earnings-per-share growth of approximately 5%–6%, broadly in line with expectations for 2026, with a similar financial mix. Goldman Sachs believes this statement implies earnings per share slightly above market consensus and is one reason for the stock's relative outperformance.
  • Goldman Sachs also believes growth in US branded checkout could improve sequentially each quarter. However, continued investment in transaction margin is still weighing on growth in transaction margin dollars and earnings per share; the European business simultaneously faces tariffs, changes to the duty-free threshold for low-value goods, and competitive pressure.

What are the company's near-term profit and cash flow targets?

  • Management expects modest transaction margin dollar growth in the fourth quarter of 2026 and non-GAAP earnings per share of 1.43 dollars. Full-year transaction margin dollars are expected to be approximately 15.7 billion dollars, operating expense growth in the mid-single digits, and non-GAAP earnings per share approximately 5.60 dollars.
  • The company expects 2026 free cash flow to exceed 6.5 billion dollars and plans to repurchase approximately 6 billion dollars of stock and invest approximately 1 billion dollars in capital expenditure.

Why does Goldman Sachs maintain its sell rating?

  • Goldman Sachs remains cautious about competition in online checkout and expects PayPal's earnings before interest and taxes to grow at a roughly flat rate, with earnings-per-share growth coming mainly from share repurchases.
  • Goldman Sachs raised its 12-month price target from 49 dollars to 51 dollars and maintained its sell rating; it raised its earnings-per-share forecasts for 2026 and 2027 from 5.34 dollars and 5.92 dollars to 5.61 dollars and 5.95 dollars, respectively.
  • The company said it is open to strategic mergers and acquisitions, with potential deals possibly larger than small tuck-in acquisitions. Goldman Sachs believes this could affect investors' views of the company's strategic choices and the range of possible outcomes.