PayPal's Weak Guidance Masks Hidden Potential

PayPal (NASDAQ: PYPL) reported its earnings after the market close on Wednesday and, while the results were stronger than expected, the company's forecast left investors wanting more as they drove the stock down in after-hours trading. The devil's in the details, however, and digging a little deeper reveals that while the pain will be short-lived, the opportunity is vast -- and growing.

For the fourth quarter, PayPal delivered revenue of $4.96 billion, up 17% year over year, surpassing both analysts' consensus estimates of $4.94 billion and the high end of management's forecast, which topped out at $4.95 billion. Top-line growth was driven higher by strong account growth and increasing payment transactions. eBay's (NASDAQ: EBAY) transactions continue to decline as a percent of PayPal's total revenue, falling from 26% in 2015 to just 14% today.

Adjusted operating margins continued the expansion we've seen in previous quarters, growing to 23.6%, up 200 basis points from 21.6% in the prior-year quarter. This led to profit growth that was equally robust. PayPal's operating income grew to $800 million, up 34% year over year, resulting in adjusted earnings per share (EPS) of $0.86, up 24%.

Source Fool.com