Key Market Outlook(s) and Pick(s)
On Friday, I joined Stuart Varney on Fox Business “Varney & Co” to discuss markets, outlook, the Fed, rotation, and more. Thanks to Stuart and Maggie Edwards for having me on:
On Tuesday, I joined Brian Sozzi and Brooke DiPalma on Yahoo! Finance to discuss PayPal, Disney, Intel, Alibaba, Palantir, and more. Thanks to Brian, Brooke, and Justin Oliver for having me on:
PayPal Update
The market doesn’t like surprises, and we certainly got one with PayPal’s Q4 earnings report.
After a brief ~2.5 year tenure, the board decided to part ways with CEO Alex Chriss following what it viewed as an underwhelming pace of change and execution.
We thought Chriss, who spent 19 years at Intuit overseeing the SMB division (responsible for >50% of revenue) and helping turn the stock into a 38x bagger, would have had a longer leash to turn things around at PayPal. To us, this looks like nothing more than a board that was desperate to keep their jobs after getting spooked by the short term stock price fluctuations.
We think Chriss did much of the necessary heavy lifting for the turnaround during his tenure: reining in costs, “firing” unprofitable enterprise customers, and playing offense by gaining ground on innovation. Some initiatives included Fastlane, PayPal World, successfully monetizing Venmo, pushing further into omnichannel, and partnerships on the AI front with heavy hitters like Google and OpenAI.
One of the biggest undertakings of his tenure was the overhaul of the legacy branded checkout. As it turned out, untangling more than a decade of legacy integrations proved far more complex and rolled out much slower than planned.
In many ways, this situation reminds us of the Intel story with former CEO Pat Gelsinger. After serving as CEO for nearly four years and laying the groundwork for the turnaround with the “5 nodes in 4 years” plan, he was essentially forced out by the board’s impatience after bringing the company to what we saw as the 10-yard line. That paved the way for current CEO Lip-Bu Tan to step in as the hero, spike the football in the end zone, and claim most of the credit.
We suspect a similar setup unfolding at PayPal with the appointment of new CEO Enrique Lores.
Just like Lip-Bu Tan was at INTC before taking the reins, Lores has spent the past five years on the PayPal board, holding the chairman position for the past ~18 months. He’s no stranger to PayPal’s business, which gives us confidence that the learning curve will be short and helps avoid the playbook reset that often follows CEO changes.
On top of that, he brings a proven track record from his over three decades at HP, where he has spent the past six years as CEO, with the stock climbing from trough levels of ~$10 to peaks of ~$37 per share during his tenure. Like PYPL today, rather than reinventing the wheel, this was a “boring” business that delivered value by aggressively reducing the share count, buying back nearly half of shares outstanding over the past ten years. Here is the Enrique Lores playbook of buying in 37.5% of the shares outstanding since he became CEO in 2019:
So while the C-suite change came as a bit of a surprise, we in no way expect it to derail the PayPal turnaround. If there’s one thing we’d like to see Lores do, it’s step into the open market and put some real skin in the game personally by buying stock, taking a page from Lip-Bu Tan’s playbook and something Chriss never did.
Moving on from the CEO change to what really drives returns: fundamentals.
Based on the market’s reaction to the print, you would think PayPal reported collapsing sales, negative free cash flow, and was getting taken out on a stretcher.
This is simply not the case.
- Total payment volume increased 9% to $475.1 billion, ending the year up 7% at $1.79 trillion.
- Net revenues increased 4% to $8.7 billion, ending the year up 4% at $33.2 billion.
- Transaction margin dollars increased 3% to $4 billion, ending the year up 6% at $15.5 billion.
- Adjusted EPS grew 3% to $1.23, finishing the year up 14% at $5.31.
- Adjusted free cash flow came in at $2.1 billion for the quarter and $6.4 billion for the full year (~15% FCF yield).
The market clearly hated 2026 guidance, which admittedly looks ugly and may very well prove sandbagged. The weakness is largely tied to branded checkout, which represents ~30% of TPV but contributes an outsized 50%+ of profit dollars and decelerated to 1% growth from 5% Q/Q.
Unfortunately, weakness in the core button overshadowed the many positives that are getting almost no attention: Venmo’s fifth straight quarter of double-digit growth to $1.7 billion in annual revenues, BNPL growing 23% Y/Y to more than $40 billion in TPV, and Braintree returning to double-digit growth after lapping the “firing” of unprofitable customers.
Not to mention, even if you take management’s guidance at face value and assume a 5% EPS decline in 2026 (guidance of low-single-digit decline to slightly positive), you get EPS of ~$5.05 per share. That leaves the stock trading at ~8x earnings today. Complete silly season.
What is being completely overlooked with this “weak” guidance is that PayPal still expects to generate over $6 billion in free cash flow and buy back $6 billion worth of stock.
After this capitulation, that’s enough to buy back ~15% of the company over the next 12 months. Meaning, our slice of the pie gets that much bigger without putting up a dime (although we did put up some more!).
So as the weak hands get flushed out and puke into the hole over the next few days, it will be PayPal on the other side of the trade, buying as many cheap shares as they can get their hands on.
At the end of the day, companies generating $6B+ of annual free cash flow with $14.8B of cash on the balance sheet and a net cash position of ~$3.2B don’t go out of business, regardless of what Mr. Market’s short term pricing might suggest.
We saw the exact same situation and short-term noise with Alibaba for years, where fortunes were ultimately made. We think this setup with PayPal is the next Alibaba. And just as we did with Alibaba in the “dark days,” we zoom out, burden ourselves with the facts, and take advantage of Mr. Market’s manic behavior.
Beyond PayPal pulling its own internal levers to fix itself, burdening ourselves with the facts also leads us to the chart below, showing PYPL is one of the best leveraged ways to play a consumer sentiment recovery.
UMich sentiment sits near record lows, worse than during COVID, the GFC, and even Volcker-era inflation. Time and time again, history shows these dislocations are generational buying opportunities rather than the self-proclaimed end of the world.
If Scott Bessent’s call for 4-5% real GDP growth in 2026 (7-8% nominal) has legs, expect the sentiment rubber band to snap back sharply. There are countless arrows in the quiver to support that view: bigger tax refunds ($1,000+ boosts for households), potential tariff dividend checks, the easing cycle, etc.
When this does recover, as it always has, expect PayPal to follow suit and suddenly catch a bid, giving the turnaround even further room for upside from the current priced-for-death levels.
Q4 Earnings Breakdown
10 Key Points
1) PayPal reported Q4 revenue of $8.68B (+4% Y/Y), slightly below consensus of $8.80B, with full year net revenue rising 4% to $33.2B. Adjusted Q4 EPS came in at $1.23 (+3% Y/Y), missing consensus of $1.28 and bringing full year adjusted EPS to $5.31 (+14% Y/Y).
2) Venmo delivered its 5th straight quarter of double digit growth, with 2025 revenue rising 20% to $1.7B, putting the business on track to exceed its original $2B 2027 target well ahead of schedule. Venmo now has 100M+ active accounts, including 67M monthly active users, growing 7% Y/Y. Average revenue per account increased 14% Y/Y, and over the past two years, Pay with Venmo and Venmo debit card revenue has doubled.
3) The PSP segment saw TPV accelerate to +8% from +6% last quarter, bringing full year TPV growth to +5%. Most importantly, Enterprise payments (Braintree), which had been intentionally weighed down by the pivot away from unprofitable volume, continued to accelerate, growing 12% versus mid single digit growth last quarter. The segment has now delivered seven consecutive quarters of profitable growth and is contributing to TM$ growth following the reset, supported by meaningfully expanded margins and nearly doubled net processing yield Y/Y.
4) Branded checkout was the soft spot of the quarter, with TPV growth decelerating to just 1% from 6% last year and down from 5% last quarter, coming in worse than expected. Online Branded was weighed down by three primary factors, each representing ~100 bps of headwind: weakness in US retail, international pressures, and difficult comps across high growth verticals. While management noted it is difficult to call a precise timeline for reacceleration, with full year guidance calling for slightly positive to low single digit growth, they did highlight that quarter to date, online branded is tracking slightly ahead of Q4 levels. Meanwhile, branded experiences, which include PayPal, BNPL, Venmo, and debit card programs, delivered TPV growth of 4% in Q4 and 6% for the full year. Omnichannel momentum remains strong, with global debit TPV exceeding $35B (+60% Y/Y), and management sees a clear runway to extend omnichannel growth into 2026.
5) Buy Now Pay Later (BNPL) continues to perform well, growing 23% Y/Y and reaching over $40B in TPV for the full year. PayPal BNPL continues to outpace the broader market and gain share, with unit economics on par with or better than peers, while BNPL users drive a meaningful uplift in overall user activity and engagement.
6) Management repurchased 23M shares for $1.5B in Q4, bringing TTM repurchases to 86M shares for $6B. This drove a 7% reduction in weighted average share count during the year and brings total share count down ~20% over the past five years. Management expects to repurchase another ~$6B of shares in 2026, representing ~15% of the company at current levels, in addition to an annual dividend yield that is now just over 1%.
7) Transaction margin dollars (essentially gross profit), excluding interest on customer balances, increased 4% in Q4 to $3.7B, bringing full year TM$ to $15.5B (+6% Y/Y). Importantly, the transaction loss rate improved by 2 bps Y/Y to 0.06%, while transaction expense also improved by 2 bps to 0.89% during the quarter. Management expects growth investments across branded checkout, BNPL, consumer engagement, and agentic to create a ~300 bps headwind to TM$ growth in 2026, resulting in a slight decline for the year.
8) PayPal generated $2.1B in adjusted free cash flow during Q4, bringing full year free cash flow to $6.4B (-3% Y/Y). Management expects to generate $6B+ of FCF in 2026, implying a ~15% FCF yield at current levels.
9) Total active accounts reached a new record high, increasing 1.1% Y/Y (+4.7M) and 0.3% Q/Q (+1.2M) to 439M, largely driven by strength at Venmo. Monthly active accounts increased 1% Y/Y to 231M, and most importantly, transactions per active account, excluding PSP, increased 5% Y/Y.
10) Guidance for 2026 came in well below expectations, with adjusted EPS expected to post a low single digit decline to slightly positive versus $5.31 in 2025, compared to Street estimates of $5.60. Management expects full year TM$ to post a slight decline, compared to 6% growth in 2025. Management also withdrew the 2027 Investor Day targets released just one year ago, noting the prior outlook assumed a more stable e-commerce environment and a product rollout cadence that has not materialized to date.
Earnings Call Highlights
Morningstar Analyst Note
VF Corp Update
VF Corp delivered another strong quarter as Bracken Darrell reminds us why his nickname is now Growth Bracken, not just Turnaround Bracken. And he is starting to earn that nickname in spades.
Over 75% of the business is now back in growth mode. The Americas region posted its strongest performance in over three years (+6%). Global DTC inflected to growth for the first time in a couple of years (+3%). At the brand level, Vans’ global digital channel returned to growth for the first time in 19 quarters.
All in, VF is positioned for its first full year of positive revenue growth since FY2023.
This long awaited return to growth is something we have been underwriting for quite some time. The market is finally starting to wake up to the power of VF’s iconic brand portfolio and what happens when the flywheel begins spinning again.
Whether it’s The North Face firing on all cylinders with 8% growth and tracking toward its long term path of 2x apparel and equipment and 3x footwear.
Or Timberland posting its 5th straight quarter of global growth across DTC and wholesale, while still in the early innings of its major U.S. expansion push.
Or breakout star Altra, which is set to more than 5x revenue since the 2018 acquisition and is steadily building toward becoming VF’s next $1B+ heavy hitter.
And last but not least, Vans showing clear green shoots in Tier 0 accounts, strong sell through on new styles, and momentum building toward the long anticipated inflection back to growth, which increasingly looks closer than many expect.
The most exciting part about this return to growth is what it means for operating leverage. As revenue re-accelerates, margin expansion should follow in a meaningful way as VF marches toward its FY2028 targets of 55% gross margins and 10% operating margins (targets based largely on cost cuts with minimal growth assumptions). Those goals are increasingly looking like layups.
While the stock has made a nice move from our initial cost basis, zooming out quickly reminds us what inning this story is still in:
Early, early days…
Sit tight, because Growth Bracken is not only restoring growth across the existing brand portfolio, but over the coming years, we expect VF to be adding the new HOT brands of the day to the portfolio, running the same playbook that has defined the company since 1899.
Rise. Repeat.
Q3 Earnings Breakdown
10 Key Points
1) VF Corp reported Q3 revenue of $2.82B (+4% Y/Y / +2% C$), beating consensus estimates of $2.75B and prior guidance of a C$ decline of 3% to 1%. More than 75% of the business has returned to growth, led by the Americas delivering its strongest performance in over three years (+6%) and global DTC inflecting back to growth (+3%). Adjusted EPS of $0.58 (-4.9% Y/Y) also beat Street expectations of $0.45.
2) The North Face reported revenue of $1.36B (+8% Y/Y / +5% C$), led by the Americas (+15% Y/Y), with double digit growth across both channels and all categories growing Y/Y. Management noted the second installation of the SKIMS collaboration continues to drive brand heat, with the Americas remaining the strongest global opportunity given how underpenetrated the region still is. Management expects similar growth in Q4 and sees no reason to believe this quarter’s strength at TNF was an outlier, supporting continued strong performance over time.
3) Timberland reported revenue of $569.7M (+8% Y/Y / +5% C$), marking its fifth consecutive quarter of global growth across both DTC and Wholesale. The Americas posted +9% growth during the quarter, with four full-price stores opened in the U.S., bringing the total to 10. Search interest for the brand continues to increase across the U.S. and EMEA, with the boat shoe growing double digits across all regions as the brand expands into more four-season wear.
4) Vans reported revenue of $557.6M (-8% Y/Y / -10% C$), in line with management expectations as the brand continues to lap the final cleanup actions. The biggest positive during the quarter was global e-commerce inflecting back to growth for the first time in 19 quarters, with Bracken noting e-commerce is the fastest lever to turn, followed by stores and then wholesale. Early green shoots are emerging, with the K-Pop Demon Hunters collaboration driving brand heat, including a strong second refill, alongside Tier 0 accounts gaining traction and non-icon product growing Y/Y. Management expects further improvement in Q4, with the decline rate moderating to mid single digits and traffic trends beginning to show sequential improvement.
5) Altra posted revenue growth of 23% during the quarter, marking its fourth straight quarter of double digit growth. The brand is now tracking to exceed $250M, likely closer to ~$270M, in full year sales (vs. ~$50M at acquisition in 2018), with Bracken calling it a $1B long term revenue opportunity. VF plans to continue investing heavily in Altra marketing given the strong ROI and has teased upcoming collabs in the coming months.
6) Operating income exceeded expectations in Q3, coming in at $341M versus $318M last year and prior guidance of $275M to $305M. Adjusted operating margin reached 12.1% (+30 bps Y/Y), bringing YTD margins to 8.4% and tracking toward ~6.5% for the full year (vs. 5.9% in 2025). This keeps VF firmly on track to reach its 10%+ operating margin target by FY2028, with each incremental $1B of revenue implying ~150–200 bps of operating leverage.
7) Adjusted gross margins came in at 57% in Q3 (+10 bps Y/Y), bringing YTD margins to 54.8% and expected to finish the year at 54.5% or better. This puts VF within shooting distance of its FY2028 target of 55%, which is beginning to look like a layup with room for upside surprises. Adjusted gross margins are expected to improve modestly in Q4, with tariff-related pricing actions beginning to take effect after an unmitigated impact of ~$40M in Q3.
8) Management continues to focus on deleveraging the balance sheet, with net debt down $0.5B (-11% Y/Y) to $4.2B and, excluding lease liabilities, down $0.6B (-18% Y/Y) to $2.7B. Management plans to prepay the March 2026 €500M notes and now expects to end the year at or below 3.5x leverage, compared to entering the year at 4.1x, putting the company well on track to likely reach its FY2028 2.5x target earlier than expected.
9) Free cash flow on a reported basis reached $513M YTD, with management still expecting FCF to be up Y/Y compared to $313M in 2025. This includes the ~$100M payment of incremental tariffs as well as an estimated ~$35M negative impact from the sale of Dickies. Net inventories, excluding Dickies, were also down 4% C$ during the quarter, helping support additional FCF generation.
10) Management expects Q4 revenue to be flat to +2% C$ Y/Y, with FX expected to drive a ~500 bps tailwind during the quarter (key part of our multinational thesis). This implies the first full year of revenue growth ex-Dickies for VFC since FY2023.
Earnings Call Highlights
Morningstar Analyst Note
General Market
The CNN “Fear and Greed Index” ticked down to 41 this week from 66 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)
The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) held flat at 88.46% equity exposure this week.
Our podcast|videocast will be out sometime today. We have a lot of great data to cover this week. Each week, we have a segment called “Ask Me Anything (AMA)” where we answer questions sent in by our audience. If you have a question for this week’s episode, please send it in at the contact form here.
Larger accounts $5-10M+ can access bespoke service anytime here.
Not a solicitation.
