PayPal Holdings Inc.'s third-quarter sales missed estimates in its first report since the company's July separation from eBay Inc., revealing a rocky start to its first few months as a stand-alone company.
Profit, excluding items, was 31 cents a share on revenue of $2.26 billion, compared with analysts' average projections of 29 cents and $2.28 billion, according to data compiled by Bloomberg. Sales were $1.98 billion a year earlier, the San Jose, Calif.-based company said Wednesday in a statement Wednesday.
The goal of the July split was to make sure that each company could focus on their main businesses. PayPal faces competition from startups such as Square Inc. and Stripe Inc. as well as mobile wallet efforts by Apple Inc., Google Inc. and even JPMorgan Chase & Co., which entered the digital payments race Monday with the announcement of Chase Pay.
Investors are focusing on profit margins. Payments companies can boost transaction volume by inking deals with big retailers, often sacrificing margins. The downside of that strategy went on display when Square disclosed its money-losing relationship with Starbucks Corp.
"Investors will also hone in on PayPal's take rate to see if the shift to larger retailers and more person-to-person payments continues to drive rates down," said Gil Luria, analyst at Wedbush Securities in Los Angeles. "Margins will be key as PayPal adjusts to being a stand-alone company."
PayPal fell as much as 7.8 percent in extended trading after closing at $36.52 on Wednesday in New York, leaving the stock down 4.9 percent since the July 20 split.
PayPal reported an operating margin of 14.6 percent for the quarter compared with 13.8 percent a year earlier.
The challenge for CEO Dan Schulman is to differentiate PayPal in the eyes of consumers and merchants as competition intensifies. His strategy is to use payments as an entry point and build additional services to go with them, such as the company's merchant cash advance program PayPal Capital, which gives preapproved loans to businesses that process payments through PayPal. The company is also getting into the international money-transfer business by purchasing Xoom Corp. for $890 million in a deal announced in July.
The company surpassed $1 billion in merchant cash advances to 60,000 businesses in the U.S., U.K. and Australia through PayPal Capital, Schulman said Tuesday in a keynote speech at the Money2020 payments convention in Las Vegas. The pace of advances has increased to $3 million a day from $1 million a day a year earlier, PayPal said. Square, by comparison, has issued more than $300 million.
"We are much more than a button on a website," Schulman said.
For the full year, PayPal maintained its 2015 earnings forecast of $1.23 a share to $1.27 a share, excluding certain items. Analysts projected $1.25.