Why PayPal Stock Finally Popped Today

Shares of financial technology (fintech) company PayPal Holdings (NASDAQ: PYPL) popped on Tuesday after the company reported financial results for its second quarter of 2024. PayPal stock has been stuck in neutral for a long time, but it's finally gaining some ground this morning, having risen almost 10% as of 9:45 a.m. ET.

What's the good news for PayPal?

In Q2, PayPal grew its net revenues by 8% to $7.9 billion. That is a deceleration from its 9% growth in the first quarter, but it was much better than the 6.5% growth that management had expected.

Better-than-expected topline results are motivating PayPal's management to repurchase more shares than previously planned. Over the past year, the company has repurchased about $5 billion of its shares, including $1.5 billion in Q2 alone, which has brought its share count down by about 6%.

When the share count goes down, PayPal's earnings per share (EPS) go up. Previously, the company expected to have full-year EPS of $3.65. But now it believes it can earn $3.88-$3.98 per share. This EPS boost is part of the reason PayPal stock popped this morning.

More work to do

I wouldn't say that PayPal is fully back to growth mode yet. Its revenue growth rate is expected to further decelerate in the upcoming third quarter. And its EPS in 2023 was $3.84, meaning that its EPS guidance for 2024 is only modestly improved despite significant share repurchases. In short, there's not much growth on the top line, and the bottom line is growing only via buybacks.

That said, perhaps the most encouraging thing for PayPal right now is an improvement in its profit margins in Q2. Margins have slipped in recent years, a sign of weakness in the business. Regaining some operating leverage in Q2 provides a glimmer of hope that it's on the right path, even if there's plenty more work to do.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy .