PayPal Holdings, Inc. (PYPL - Free Report) reported non-GAAP earnings of $1.07 per share in second-quarter 2020, which surpassed the Zacks Consensus Estimate by 25.9%. Further, the figure improved49% on a year-over-year basisand 62.1% sequentially.
Although the bottom line was impacted by rise in credit provisions on account of revised macroeconomic projections, it benefited from unrealized gain from MercadoLibre investment.
Net revenues of $5.3 billion outpaced the Zacks Consensus Estimate of $4.9 billion. The figure improved 22% from the year-ago quarter on a reported basis and 25% on FX-neutral basis. Further, it increased 13.9% from the prior quarter.
Growing total payment volume (TPV) courtesy of increasing net new active accounts contributed to year-over-year top-line growth. Moreover, boom in digital payment and e-commerce space owing to ongoing coronavirus pandemic remained a tailwind.
Further, strong performance delivered by Venmo and merchant services contributed to the results. Additionally, PayPal Checkout experiences, which witnessed growing transactions, remained a positive.
Notably, shares of the company have surged 3.2% in the pre-market trading, which can primarily be attributed to its stellar second-quarter performance and positive outlook for current quarter and full year.
The company expects to continue witnessing uptrend in the digital payment market for the rest of the year.
Additionally, accelerating transaction revenues of PayPal are likely to continue driving revenues. Further, its strong efforts toward product enhancements remain positives.
The deployment of QR code technology across PayPal and Venmo apps in 28 global markets is expected to deliver better payment experience. Further, activation of direct deposits for Venmo users and launch of Business Profiles are noteworthy.
Additionally, the availability of PayPal as a payment option for Mercado Pago’s online checkout is likely to enhance its e-commerce capabilities.
All these factors are instilling investor confidence in the stock.
Notably, PayPal has returned 76.8% on a year-to-date basis, outperforming the industry’s rally of 56.6%.
Top Line in Detail
By Type: Transaction revenues amounted to $4.9 billion (94% of net revenues), up 28% from the year-ago quarter.Other value-added services generated revenues of $316 million (accounting for 6% of net revenues), decreasing 26% year over year.
By Geography: Revenues from the United States totaled $2.7 billion (50% of net revenues), up 15% on a year-over-year basis. International revenues were $2.6 billion (50% of revenues), up 30% from the prior-year quarter.
Key Metrics to Consider
PayPal witnessed year-over-year growth of 21% in total active accounts with addition of 21.3 million net new active accounts during the reported quarter.Positive contributions from Honey acquisition contributed to growth in net new active number. The total number of active accounts was 346 million in the quarter under review, which surpassed the Zacks Consensus Estimate of 341 million.
Additionally, the total number of payment transactions came in at 3.7 billion, up 26% on a year-over-year basis. Further, the figure outpaced the Zacks Consensus Estimate of 3.6 billion. Strong PayPal Checkout experiences benefited the performance.
Further, the company’s payment transactions per active account were 39.2million, which improved0.5% from the year-ago quarter, reflecting strong customer engagement on PayPal’s platform. Further, the figure surpassed the Zacks Consensus Estimate of 38.9million.
TPV amounted to $221.7 billion for the reported quarter, reflecting year-over-year growth of 29% and 30%on spot rate and currency neutral basis, respectively. Further, the figure surpassed the Zacks Consensus Estimate of $209.3 billion.
Notably, year-over-year growth in TPV was primarily driven by robust Venmo, which accounted for $37 billion of TPV, surging 52% on a year-over-year basis courtesy of strong monetization efforts.
Further, merchant services, which contributed 91% to the TPV,and the volume generated from these services was up 28% year over year. The company witnessed around 1.7 million of merchants signing up during the second quarter.
PayPal’s operating expenses were $4.3 billion in the second quarter, up 19.7% from the prior-year quarter. As a percentage of net revenues, the figure contracted 170 basis points (bps) year over year.
Consequently, non-GAAP operating margin came in at 28.2%, expanding 500 bps from the year-ago quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2019, cash equivalents and investments were $13.05 billion, up from $10.2billion on Mar 31, 2019.
PayPal had a long-term debt balance of $8.9 billion at the end of second quarter compared with $7.9 billion at the end of first quarter.
The company generated $2.4 billion of cash from operations, up from $1.5 billion in the previous quarter.
Free cash flow came in at $2.2 billion during the reported quarter, up from $1.3 billion in the prior quarter.
Further, the company returned $220 million to shareholders and repurchased 1.4 million shares.
For third-quarter 2020, PayPal expects revenues to reflect year-over-year improvement in the range of 23% at current spot rate and 25% at FX-neutral basis. The Zacks Consensus Estimate for revenues is pegged at $5.02 billion.
Non-GAAP earnings, which are anticipated to grow by 25%, are expected to carry acquisitions impact of 4 cents per share. The Zacks Consensus Estimate for earnings stands at 86 cents per share.
Additionally, TPV in the third quarter is likely to exhibit an improvement of 30%.
For 2020, PayPal expects revenues to reflect year-over-year improvement in the range of 20% at current spot rate and 22% at FX-neutral basis. The Zacks Consensus Estimate for revenues is pegged at $20.22 billion.
Non-GAAP earnings, which are anticipated to grow by 25%, are expected to carry acquisitions impact of 11 cents per share. The Zacks Consensus Estimate for earnings stands at $3.33 cents per share.
Additionally, TPV for 2020 is likely to exhibit growth of high in 20s.
Zacks Rank & Key Picks
PayPal currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Dropbox (DBX - Free Report) , Benefitfocus (BNFT - Free Report) and Analog Devices (ADI - Free Report) . While Dropbox sports a Zacks Rank #1 (Strong Buy), Benefitfocus and Analog Devices carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Dropbox, Benefitfocus and Analog Devices are scheduled to report earnings on Aug 6, Aug 5 and Aug 19, respectively.
Long-term earnings growth rate for Dropbox, Benefitfocus and Analog Devices is pegged at 32.51%, 30% and 13.33%, respectively.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>