PayPal (PYPL) is set to release its Q2 earnings report tomorrow morning before the market opens, with an analyst call scheduled for 8:00 am ET. Analysts anticipate earnings of $0.96 per share, reflecting a 17.2% decline year-over-year, on revenues of $7.78 billion, a 6.8% increase. The FactSet consensus is slightly higher, expecting adjusted EPS of $0.99 and revenues of $7.82 billion, marking a 7% improvement.

Key metrics to watch include 'Revenues from other value-added services' expected at $720.45 million, 'Transaction revenues' projected to reach $7.06 billion, and 'Total Payment Volume (TPV)' forecasted at $419.54 billion. Analysts also predict the 'Transaction margin' to be 43.3%, down from 45.9% last year, and 'Active accounts' to reach 428 million, a slight decrease from 431 million in the prior year. The number of payment transactions is expected to rise to 6,908 million from 6,074 million last year.

Shares of PYPL have underperformed year-to-date, down 5% compared to the S&P 500's 15% gain. The Q2 report presents an opportunity to rebuild investor confidence in the management's turnaround strategy.

After a brief uptick following the Q1 results, shares have since declined by 13%, contributing to a 20% underperformance year-to-date. Wells Fargo attributes this to diminished excitement around new products, with investors realizing that benefits may take years to materialize. Mizuho sees potential in transaction margin dollar growth, predicting a ~3% increase for both Q2 and the full year, which could re-energize the stock.

William Blair is more cautious, noting that significant improvements in transaction dollar margin are necessary for a stock re-rating, which they do not foresee as a high-probability outcome in 2024 or 2025. Mizuho also highlights the potential benefits of the recent Apple EU settlement for PayPal, particularly for Venmo's Tap-to-Pay feature in the US.

PayPal is seeing early signs of growth in its transition year, highlighted by an increased outlook for FY24 adjusted EPS growth, now projected to rise by a mid to high single-digit percentage compared to previous flat expectations. Despite a miss in adjusted EPS for Q1, the company still posted a 27% year-over-year increase under its new non-GAAP methodology, which excludes stock-based compensation and related employer taxes.

Total payment volume (TPV) growth remained robust, with payment transactions continuing to rise by double digits, and active accounts ticking up sequentially for the first time since Q4 2022.

In Q1, PayPal reported adjusted EPS of $1.08 and a 9.4% year-over-year revenue increase to $7.7 billion. TPV saw a 14% year-over-year increase, mirroring last quarter's 15% rise. Although active accounts fell by 1% year-over-year to 427 million, they improved by 0.4% from the previous quarter. Investors are focusing on PayPal's strategic initiatives, such as Fastlane by PayPal, which achieved an 80% conversion rate among returning users, and PayPal Complete Payments (PPCP), which is gaining traction among small and medium-sized businesses. Venmo debit cards also saw a 21% increase in user activity. Despite these positive developments, CEO James Chriss acknowledged that significant work remains in the company's turnaround plan, with ongoing challenges posed by competitors like Google and Apple.