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What’s happening: Shares of PayPal Holdings tumbled on Tuesday, despite the company reporting better-than-expected results for its first quarter.
What happened: PayPal reported upbeat earnings for the first quarter and boosted its adjusted profit outlook for the full year.
However, investors became concerned after the company lowered its forecast for one of its major metrics.
How were the results: The finance and payments company reported single-digit growth in sales for its first quarter amid healthy growth in ecommerce.
Why it matters: Continuous interest rate hikes by central banks resulted in lower purchases of more expensive products by shoppers.
PayPal’s total payment volume rose 10% year-over-year to $354.5 billion in the first quarter. However, this marked a sequential decline from $357.4 billion in the fourth quarter. Payment transactions climbed 13% to 5.8 billion.
PayPal ended the quarter with 433 million total active accounts, representing 1% year-over-year growth.
Investors grew concerned as PayPal’s growth in the second quarter was driven by its lower-margin unbranded transaction processing business, which includes the Braintree unit. The mix shift impacted the company’s operating margins.
Management guided to revenue growth of 6.5%-7% for the second quarter, with earnings of $1.15 to $1.17 per share, versus expectations of $1.04 per share. For the full year, PayPal said it expects full fiscal year earnings of $4.95 per share, above the consensus estimates of $4.36 per share.
Due to the growing importance of its unbranded transaction processing business, the company lowered its margin expansion guidance from 125 basis points to 100 basis points for the year.
How shares responded: PayPal’s shares tanked 12.7% to close at $65.90 on Tuesday, following the release of quarterly results. The stock has lost around 12% over the past month.
What to watch: Markets will continue monitoring the performance of PayPal’s legacy business versus its lower-margin unbranded business as well as the company’s push towards AI. Investors will also watch the Federal Reserve’s rate decision in its upcoming meetings.
Context: Gold prices edged higher on Tuesday amid debt limit concerns in Washington.
Details: Equity markets globally remained under pressure on Tuesday, following weak trade data from China and the impasse over debt ceiling in the US.
China’s imports shrank 7.9% year-over-year in April, following a 1.4% decline in the prior month. Exports from the country grew 8.5%, decelerating from 14.8% growth a month ago, despite the lifting of covid-19 restrictions in the country.
Traders also remained on edge ahead of the release of US inflation data. A hotter-than-projected inflation report could increase the prospects of another rate hike by the Federal Reserve. Although the safe-haven yellow metal is viewed as a hedge against inflation, higher interest rates lower the appeal of non-yielding gold.
Gold prices edged higher on Monday, despite strength in the US dollar, which generally impacts the demand for commodities and metals by making them more expensive for foreign currency holders.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.2% to 101.61 on Tuesday.
Gold for June delivery rose $9.70, or 0.5%, to settle at $2,042.90 an ounce, while silver for July delivery added 7 cents to $25.90 an ounce on Tuesday.
Platinum gained around 2.6% to $1,116, while palladium climbed to $1,579.70 and July copper lost 3 cents to $3.90 a pound.
What are expectations: Traders await inflation rate data from the US today, which is expected to provide direction to gold prices. The US CPI had risen by 0.1% in March and is expected to rise by 0.3% in April. However, the annual inflation rate is projected to decline to 4.9% in April, from 5% in March.
Other Markets: European indices closed mostly lower on Tuesday, with the FTSE 100, CAC 40 and STOXX Europe 600 Index down by 0.18%, 0.59% and 0.33%, respectively, and the DAX 40 up by 0.02%.
Russia suspended operations at the Zaporizhzhia nuclear plant and evacuated citizens, citing “provocations” by Ukraine’s military forces. The news sent the safe-haven US dollar index slightly lower this morning.
Japan’s foreign exchange reserves rose to $1.265 trillion in April, from $1.257 trillion in the previous month. This being the second consecutive month of increase lent support to the JPY/USD forex pair.
South Korea’s unemployment rate fell to 2.6% in April, from 2.7% in the prior month, which sent the KRW/USD pair higher in forex trading this morning.
Mexico’s annual inflation rate eased to 6.25% in April, from 6.85% in the previous month. However, the figure came in slightly worse than market expectations of 6.23% and exerted pressure on the MXN/USD forex pair.
The American Petroleum Institute said that US crude stockpiles had increased by 3.618 million barrels in the week ended May 5, compared to a decline of 3.939 million barrels a week ago. The news sent WTI crude oil prices higher this morning.
Germany’s consumer price inflation, Turkey’s unemployment rate, industrial production and labour force participation rate, Italy’s industrial production, US MBA mortgage applications, gasoline stocks change, crude oil inventories, distillate inventories and government budget, Brazil’s industrial production, Canada’s value of building permits, Russia’s foreign exchange reserves, as well as Spain’s consumer confidence indicator.
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