PayPal Earnings Top Estimates. The Stock Falls.

PayPal posted better-than-expected adjusted earnings in the second quarter. (Gabby Jones/Bloomberg)

Things are looking up for PayPal Holdings , as the company announced Tuesday that it had achieved its sixth consecutive quarter of profitable growth. The market was slightly less upbeat.

Adjusted earnings of $1.40 a share were better than the $1.30 expected by analysts, according to FactSet. Transaction margin dollars, a key measure of profitability, grew 7% from the prior year to $3.8 billion. Excluding interest on customer balances, this metric rose 8% to $3.5 billion.

Both total active accounts and monthly active accounts were up 2%, while transactions per active account grew 4%, excluding payment service provider transactions. Branded experiences TPV—a measure of the total payment volume of PayPal and Venmo online checkout as well as branded, in-store payment methods like debit and tap-to-pay—grew 8% in the quarter.

There was more to the print than meets the eye. J.P. Morgan analysts noted Tuesday that branded checkout volumes were up just 5% in the quarter, below the firm’s own estimates and “likely a bit light relative to investor expectations.”

Given the “slightly soft” branded trends and the fact that “upside to estimates seemed broadly expected,” the firm anticipated initial underperformance in the shares. PayPal was falling 7.6% at $72.31.

A company spokesperson told Barron’s that PayPal was seeing more of a mix of profitable growth beyond online branded checkout, a niche from which the company is attempting to break out under the leadership of Chriss, who took the helm in 2o23.

The strong second-quarter print compelled the company to raise its full-year guidance. Management guided for transaction margin dollars of $15.35 billion to $15.5 billion, or 5% to 6% growth. This compares with an earlier range of $15.2 billion to $15.4 billion, or 4% to 5% growth.

The company said it now expects adjusted earnings between $5.15 and $5.30 a share, a significant hike from a prior range of $4.95 to $5.10 a share. Analysts polled by FactSet were expecting $5.11 a share, below the low end of the new range.

The spokesperson told Barron’s that PayPal was on a beat-and-raise trajectory, excluding the first quarter, when macroeconomic uncertainty caused the company to maintain the guidance provided in February.

Chriss himself echoed the sentiment. “We delivered another quarter of profitable growth, driven by continued strength across many of our strategic initiatives,” the CEO said in a statement.

He highlighted a handful of “innovations” including the launch of the company’s self-titled stablecoin, which is pegged to the U.S. dollar, asserting such initiatives would “broaden the reach of our branded experiences globally.”

Despite Tuesday’s slump, J.P. Morgan isn’t giving up on the stock just yet. The firm reiterated an Overweight rating on PayPal shares, asserting that the latest earnings report was largely better than expected, with a “healthy” full-year guidance raise balancing out any softness in Branded trends.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com