Earnings Brief: A Quick Review

PayPal, Booking Holdings, Diageo

We're trying out a new post format to streamline company earnings updates. Think of this as a test run, and please share your thoughts in the comments. If this doesn't resonate with you, we won't share similar posts.

In our efforts to keep this concise, we won't cover every detail discussed during the earnings call. Instead, we'll focus on the KPIs that we believe matter most.

PayPal Holdings Q3’23

Source: Quartr (affiliate link with a 20% discount |use STOCKOPINE20 at checkout)

PayPal outperformed expectations both in terms of revenues and profitability in Q3’23. Net revenues reached $7.4B growing 8% and 9% on FX neutral basis (“FXN”). Non-GAAP Operating Income grew by 8% to $1.65B, while GAAP Operating Income reached $1.2B, a growth of 4%. The GAAP margin stood at 15.7% (down by 59bps) and Non-GAAP margin at 22.2% (down by 18bps).

Total Payment Volume (“TPV”) reached $387.7B a year-on-year increase of 15% (last quarter was up by 11%), with Venmo TPV up by 7% (last quarter was up by 9%), Branded Checkout up by 6% (last quarter was up by 5%) and unbranded processing (including Braintree) up by ~32% (last quarter was up by 28%) on FXN. This quarter's performance demonstrated robust growth in revenues and TPV, with 6.3 billion processed payment transactions, an 11% increase. Transactions per active account (TPA), a metric of engagement, saw a 13% increase, largely attributed to Braintree.

Source: PayPal Q3’23 Investor Update

However, margins remain under pressure, with a drop of 12.1% in non-transaction expenses offset by a growth of 20.7% in volume-based expenses. Transaction expense rose by 4bps to 93bps (Q2’23: 94bps, Q3’22: 89bps) due to the higher mix of unbranded that has higher cost of funding. The transaction take rate decreased to 1.72% (Q2’23: 1.74%, Q3’22: 1.85%) primarily driven by lower FX gains and fees dragging the transaction margin down to 45.4% (Q2’23: 45.9%, Q3’22: 51%).

In a nutshell, this was a good quarter with a healthy growth in TPV. We should keep an eye on transaction margins which face pressure from the increasing mix of Braintree in TPV, though, management anticipates a sequential improvement in Q4 '23, a critical milestone to watch for.

Booking Holdings Q3’23

Source: Quartr (affiliate link with a 20% discount |use STOCKOPINE20 at checkout)

Booking delivered an impressive quarter, boasting a 21% revenue increase and 44.7% adjusted EBITDA margin, 80 basis point improvement compared to prior year, demonstrating the Company’s ability to grow profitably. The travel industry's resilience was evident in robust growth in Room nights and Gross Booking Volume (GBV). Glen Fogel's optimistic outlook for strong growth in Q1 2024 further solidified confidence.

Room nights hit a record 276 million, with a 15% growth, while GBV surged by 24% to $39.8 billion. Both metrics showed acceleration from the previous quarter.

Source: Booking Holdings Q3’23 Earnings release, StockOpine analysis

Direct Bookings generated over 50% of room nights compared to 45% in Q3’22, a significant achievement. According to Fogel, a remarkable 18 percentage point increase was achieved since Q3 2019. Direct bookings offer various advantages, fostering customer relationships, building loyalty, and potentially being margin accretive due to reduced spending on performance marketing.

The company also excelled in Payments, with Booking. com processing 51% of gross bookings through its payments platform in Q3’23, up from approximately 40% in Q3’22 and 48% in Q2’23. This trend not only demonstrates effective execution but also contributes to improving the cash operating cycle.

Looking at Alternative Accommodation, Booking accomplished a 24% YoY growth in room nights, surpassing Airbnb’s growth of 14% YoY!! Meanwhile, the company also expanded its supply, with global listings reaching around 7.2 million, reflecting a 9% year-over-year increase.

All in all, this was an outstanding quarter for Booking Holdings.

Diageo Trading Update

On August 1, 2023, Diageo released its preliminary results for FY23 (ending June 2023), reiterating its medium-target guidance (FY23-FY25) of organic net sales growth of 5%-7% and organic operating profit growth of 6%-9%.