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What's in the Offing for PayPal's (PYPL) Earnings in Q3?

Zacks Equity Research

PayPal Holdings, Inc. PYPL is scheduled to report third-quarter 2019 results on Oct 23.

The company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average positive earnings surprise of 10.37%.

Which Way Are Q3 Estimates Treading?

For the third quarter, PayPal expects revenues between $4.33 billion and $4.38 billion, improving in the range of 18-19% at both current spot rate and FX-neutral basis. The Zacks Consensus Estimate for revenues is pegged at $4.34 billion.

Non-GAAP earnings are anticipated in the range of 69-71 cents per share. The Zacks Consensus Estimate for earnings stands at 66 cents.

Past-Quarter Performance

In the second quarter, PayPal reported earnings of 86 cents per share, with a positive earnings surprise of 14.67%. The figure also surged 48.3% on a year-over-year basis.

Net revenues of $4.305 billion improved 12% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $4.333 billion.

Let’s see how things are shaping up prior to this announcement.

PayPal Holdings, Inc. Price and EPS Surprise


PayPal Holdings, Inc. Price and EPS Surprise

PayPal Holdings, Inc. price-eps-surprise | PayPal Holdings, Inc. Quote

Factors to Impact Key Metrics in Q3

Total payment volume (TPV), active customer accounts, payment transactions per active account and total number of payment transactions are considered to be the key metrics for analyzing PayPal’s business growth.

PayPal’s robust product portfolio comprising of One Touch, Xoom and Venmo among others is anticipated to get reflected in the third-quarter 2019 results.

Moreover, strengthening user engagements on the company’s platform, expanding merchant base and solid momentum in P2P owing to its innovative and advanced products and services are likely to have driven the abovementioned metrics.

For the third quarter, the Zacks Consensus Estimate for active customer accounts is pegged at 295 million, up 20.4% from the year-ago quarter.

Further, the consensus mark for payment transactions per active user is pegged at 40.03 million, suggesting growth of 9.7% from the year-ago quarter. Moreover, the consensus estimates for total number of payment transactions stands at 3.13 billion, indicating an improvement of 27.2% from the prior-year quarter.

Furthermore, the Zacks Consensus Estimate for TPV is pegged at $177.7 billion, indicating growth of 24.3% on a year-over-year basis.

Other Influences

PayPal is likely to have benefited from strengthening cost structure in the to-be-reported quarter. Further, improving risk management capabilities are anticipated to have reduced transaction loss during the third quarter.

Additionally, positive contributions from strategic acquisitions and solid momentum across international markets are expected to get reflected in the third quarter results.

Further, the company’s bottom line is anticipated to carry an unrealized gain of 3 cents per share in the quarter under review, due to benefits from investment in Toss.

However, PayPal’s strategic investments in MercadoLibre MELI and Uber Technologies UBER failed to yield positive returns during the third quarter. Unrealized loss from this investment portfolio is expected to get reflected in the to-be-reported quarter results. Management anticipates a $228 million of pre-tax loss and $177 million of after tax loss thanks to fall in their share prices.

We note that shares of MercadoLibre and Uber plunged 10% and 34%, respectively, during the to-be-reported quarter. Further, this loss is likely to have a negative impact of 15 cents per share on third quarter earnings.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for PayPal this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PayPal has an Earnings ESP of -19.70% and a Zacks Rank #3.

A Stock That Warrants a Look

Here is a stock worth considering as our model shows that it has the right combination of elements to deliver an earnings beat in the upcoming release.

Advanced Energy Industries, Inc. AEIS has an Earnings ESP of +4.17% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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