Elliott Management Is Betting Big on PayPal (PYPL) Stock

  • Paypal's (PYPL) earnings weren't as bad as expected, when employee stock compensation was taken out.
  • Elliott Management revealed a $2 billion stake and endorsed new cost-cutting strategies.
  • Analysts believe the worst is over for PYPL stock.
PYPL stock - Elliott Management Is Betting Big on PayPal (PYPL) Stock

Paypal (NASDAQ:PYPL) rose 13% overnight, as earnings were less bad than expected. Additionally, activist investor Elliott Management endorsed a new cost-cutting strategy for PYPL stock.

Paypal lost $341 million, or 29 cents per share fully diluted, on revenue of $6.8 billion for the quarter ending in June, under GAAP. But under non-GAAP accounting, it showed a profit of 93 cents per share, with free cash flow of $1.3 billion up 22% from a year ago. The company doesn’t count stock-based compensation, amortization of intangible assets or restructuring charges in its non-GAAP income calculation.

The bigger news may be the Elliott Management buy-in. It comes after shares fell 60% on the year.

What Elliott Wants for PYPL Stock

Elliott revealed a $2 billion stake in the payments company, plus an endorsement of CEO Dan Schulman’s cost-cutting program. “We have plenty of heads,” Schulman told analysts.

Paypal said it is pulling back on stock trading in favor of in-store purchases. It will also look to link its main application with Venmo, the payment app acquired in 2012.

In good times, Elliott is known for replacing managers and taking a hard line on expenses. In hard times, it changes tactics, looking to save companies rather than break them down for fast profits.

That’s why Paypal has welcomed Elliott, with Elliott partner Jesse Cohn making an appearance in its earnings release to endorse the strategy.

What Happens Next?

Paypal has authorized the repurchase of $15 billion in shares against a $104 billion market cap. It named Blake Jorgensen, formerly with Electronic Arts (NASDAQ:EA), as its new chief financial officer, to oversee the “expense management” strategy.

PYPL stock is still trading for half what it did at the start of the year, but analysts now believe the worst is over.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.

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