PayPal deal with Amazon

Shares of PayPal (PYPL) fell nearly 3 percent in after-hours trading Monday after the company reported Q3 earnings below Wall Street expectations and gave a disappointing outlook.

PayPal (PYPL), the payments giant, gave investors the bad news and the good news on Monday.

Shares of PayPal, down 2 percent since the start of the year, fell nearly 3 percent after Monday's close. The good news is that PayPal has partnered with e-commerce market leader Amazon (AMZN). Beginning in 2022, users of the PayPal Venmo payment app will be able to make purchases on Amazon.com and Amazon's mobile shopping app using their accounts.

The PayPal Venmo app, which began supporting cryptocurrency services in April, has increased payment volume by 36 percent to $60 billion. Venmo has more than 80 million users in the U.S. who can buy, sell and pay with digital currencies (including bitcoin and etherium) at a network of 33 million retailers.

The partnership with Amazon, according to PayPal CEO Dan Schulman, "is a very important moment in the effort to monetize Venmo". In addition, the partnership will replace a major partner like eBay (EBAY), which is in the process of moving sellers from PayPal to its own payment system. PayPal said its transaction volume on eBay's marketplaces fell 45 percent last quarter and is now just under 4 percent of its revenue.

PayPal's Q3 2021 financial report

PayPal's earnings per share for the third quarter ended Sept. 30 rose to $1.11, above analysts' forecasts of $1.07. The company's revenue rose 13% from a year ago to $6.18 billion, but that's below analysts' forecasts of $6.23 billion.

PayPal's total payment volume rose 26% to $310 billion and the company added 13.3 million new active accounts, bringing its total to 416 million.

PayPal's projections

The bad news was PayPal's projections for the fourth holiday quarter and fiscal year 2022.

PayPal's projected fourth-quarter earnings of $1.12 are below market analysts' average expectations of $1.27, and projected revenues in the $6.85 billion to $6.95 billion range are below Wall Street's average estimate of $7.24 billion.

In addition, the company lowered its 2022 revenue growth forecast to 18 percent, to a range of $25.3 billion to $25.4 billion, compared with analysts' expectations of $25.78 billion.

Wolfe Research analyst Darrin Peller noted that PayPal's forecast was indeed "below expectations and average revenue growth projections of 21% in 2022."