PayPal lifts 2025 profit target; branded volume softness weighs on shares

By Manya Saini

July 29 (Reuters) - PayPal PYPL.O on Tuesday posted softness in quarterly branded volume growth, while broader concerns that sweeping tariffs could dent e-commerce spending later this year overshadowed its profit forecast hike and market-beating results.

The digital payments company's shares were down 8% in early trading.

U.S. consumers are starting to tighten their purse strings, growing more cautious with discretionary spending as concerns mount over trade tensions. Shoppers are bracing for higher prices on essentials, prompting some to delay or cut back on retail purchases.

Online branded checkout growth came in at 5% in the second quarter, compared with 6% in the preceding quarter, excluding the leap day effect. It was flat from a year earlier.

"Overall, consumer spending and the labor market have proven resilient, but we continue to closely watch how tariffs and other trading friction might impact global economic activity, spending and supply chains overtime," PayPal CFO Jamie Miller said on a call with analysts.

The company said it saw some deceleration in volumes on the China–U.S. corridor after tariffs were implemented, but added that the pressure has eased in July.

Still, PayPal's push to revive growth in high-margin businesses, led by Venmo, has begun to pay off, helping ease some investor concerns and allowing the company to raise its 2025 profit target.

"Investors' near-term sensitivity to branded TPV (total payment volume) growth and the company's commentary indicating that it saw some slight softening in consumer spending may temper that enthusiasm," RBC Capital Markets analysts said.

On a per-share basis, the payments firm now expects an adjusted annual profit in the range of $5.15 to $5.30 versus its prior expectations of $4.95 to $5.10. Analysts on average were expecting $5.10, according to estimates compiled by LSEG.

Miller said that the low-end of PayPal's full-year outlook has the "room to absorb a couple of points of deceleration in e-commerce spending, should that occur."

PROFIT PUSH

Under CEO Alex Chriss, PayPal has shifted its focus to profitability rather than chasing top-line growth. The company is trying to regain momentum in parts of its business that lost steam after the pandemic-era e-commerce boom faded and competition intensified.

PayPal's Venmo, a platform that has become virtually synonymous with peer-to-peer payments in the U.S., posted revenue growth of 20% for the second quarter. The unit's total payment volume growth accelerated to its highest rate in three years.

Transaction margin dollars - the profit PayPal makes on each transaction after covering direct costs - grew 7% to $3.8 billion in the quarter.

The increase reflects an ongoing push to drive higher-margin volumes across the company's branded checkout products and streamline costs tied to unbranded processing.

Adjusted operating margins expanded 132 basis points to 19.8%.

Margins have been a key source of investor concern in recent years, amid fears that Big Tech rivals such as Apple Pay and Google Pay are chipping away at PayPal's market share.

While the company long held a first-mover advantage in digital payments, that edge has diminished, though PayPal has previously pushed back against concerns that its market share is under pressure.

Adjusted profit came in at $1.40 per share in the three months ended June 30. That sailed past estimates of $1.30 apiece.

PayPal's second-quarter net revenue climbed 5% to $8.3 billion, topping expectations of $8.1 billion.