PayPal Holdings’ (NASDAQ: PYPL) Q2 Report Triggers Selling Frenzy as Bad Loans Take Toll

Shares in PayPal Holdings, Inc. (NASDAQ: PYPL) plunged nearly 9% in the pre-market trading Thursday as the concerns about growing losses on bad loans overshadowed in-line second-quarter results and a moderately rosier third-quarter forecast.

In Q2, PayPal’s adjusted operating margin, excluding certain costs and gains, slipped to 21.4% from 22.7% in the first quarter. This was a significant setback for the payment service provider, marking the first time in a year that it reported an adjusted operating margin below 22%.

One of the key reasons for this decline was the company’s decision to set aside more money to cover potential loan losses during the period.

“We saw some increased losses in our PayPal business-loan portfolio,” CEO Dan Schulman told Bloomberg. “We put a provision in for our losses, and I expect that to be a temporary blip.”

However, this reassurance failed to calm investor anxiety. In early pre-market trading on Thursday, PayPal’s shares (NASDAQ: PYPL) plummeted by $6.50, equivalent to -8.85%, bringing the stock price down to $66.72 per share.

The company’s financials for the second quarter showed positive growth, with earnings of $1 billion, or 92 cents a share, on $7.29 billion in sales. This was a significant improvement from the same period a year ago when it reported a loss of $341 million, or 29 cents a share, on sales of $6.81 billion.

Adjusting for certain costs and gains, the company would have earned $1.3 billion, or $1.16 per share, in line with Wall Street analysts estimates of $1.16 per share on $7.27 billion in sales.

For the third quarter, PayPal projects to earn 85 to 87 cents a share – or $1.22 to $1.24 a share on an adjusted basis – on $7.4 billion in sales. This forecast is slightly higher than analysts’ previous estimate of $1.22 per share on $7.3 billion in sales.