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PayPal (PYPL) Earnings After the Bell Wednesday: A Reversal May Be Near

Daniel Laboe

Amid a software sell-off, September quarter earnings kick-off, with the first big wave of reports hitting the markets this week. The pioneer of peer-to-peer transactions is reporting its Q3 earnings Wednesday, October 23rd, after the bell. PayPal PYPL, a global leader in digital payments, has traded in line with the broader internet software market, gaining 16.4% year-to-date.

PYPL has moved on earnings releases, with an average share price movement of 3.9% over the past 8 quarters (4 up, 4 down). Zacks Consensus estimates illustrate an EPS of $0.44 on sales of $4.3 billion, which would represent year-over-year growth of 4% and 18%, respectively.

Ever since its Q2 revenue miss, PYPL has been trading down with the rest of the software sector. This stock has slid over 19% since its 2nd quarter release on June 24th, coming close to bear market territory. Shareholders need healthy Q3 figures and a solid outlook to thrust PYPL back into growth.

The Business

PayPal and its subsidiaries allow consumers and merchants to digitally manage and transfer money in the blink of the eye around the world. PayPal processes roughly $1 of every $6 spent online.

The company has invested roughly $2 billion into fintech startups that PayPal is developing and partnering with to broaden both its scope and scale. PayPal wants to ensure that they stay ahead of the fintech curve through these ventures.

Today PayPal has 286 million active accounts, which has grown every quarter, illustrating 17% year-over-year expansion. 

 

The usage per customer continues to grow as you can see, the number of transactions has grown as consumers realize the advantages of this payment platform. 

PayPal’s acquisition of Braintree in 2013 gave it the renowned Venmo. Venmo combined social media with fintech and has gained an enormous amount of popularity among millennials and gen Zs. The ability to digitally pay friends with no fees and post an amusing comment about it at the same time has changed peer-to-peer payment forever.

Venmo was an early adopter and has become a necessity for anyone under the age of 35. No one carries cash anymore, and when friends split meals or a case beer, it is effortless to send the money via Venmo.

PayPal has an exceptional amount of potential with strong double-digit top and bottom-line growth estimated for the next 2 years. PYPL is being valued at a PEG of 2.1x, trading at a discount to the broader internet software sectors, which is average a PEG of 7.4x.

PayPal is expected to produce robust double-digit topline and bottom-line growth for the next couple of years.

Take Away

PayPal has been selling off for the past 3 months as the software sector prices growth out of the rich multiples. PayPal is an established firm with a long history of financial excellence. The company’s management team has demonstrated shrewd acquisitions and an ability to find synergies and grow the business from the inside out.

PYPL is ripening up as a buy every dollar it falls and this earnings report may just be the reversal this stock needed. Look for management guidance for color on the financial landscape moving forward.

This report may provide clues into how other fintech firms will perform in their Q3 releases. Visa V reports on the October 24th, Mastercard MA reports on October 29th, and Square SQ will be releasing its September quarter figures the first week of November.

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