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eBay vs. PayPal ETFs: The Story After Q1 Earnings

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The separation of online marketplace eBay Inc. (EBAY - Free Report) and payment processing company PayPal Holdings Inc. (PYPL - Free Report) will step into its third year this July. So, we can easily find out how these two entities are performing and throw light on their recent financial results. Both companies reported on Apr 25 after market close.

PayPal is now valued at $90.26 billion, almost 90% higher than its valuation on its first trading day. On the other hand, its erstwhile parent company eBay’s market cap has grown to $38.44 billion from $34.63 billion in July 2015 (read: ETFs to Ride on PayPal Growth Story).

A Look at the Latest Earnings Picture: PYPL Wins, eBAy Loses

eBay Earnings: Mixed

eBay Inc.’s first-quarter 2018 earnings matched the Zacks Consensus Estimate, while revenues missed the same by a slight margin. Pro-forma earnings of 53 cents improved 9% year over year.

Gross revenues of $2.58 billion were up 12% on a year-over-year basis (up 7% on an Fx-neutral basis) but within the guided range of $2.57-$2.61 billion. Revenues were below the Zacks Consensus Estimate of $2.598 billion. In Q1, eBay’s  active buyers grew 4% across its platforms.

For the second quarter of 2018, eBay expects revenues to grow 6-8% on an Fx-neutral basis to $2.64-$2.68 billion compared with the Zacks Consensus Estimate of $2.68 billion. Non-GAAP earnings are expected within 50-52 cents, while the Zacks Consensus Estimate was 52 cents. Shares have lost 5.6% in the key trading session of Apr 26 thanks to this mixed result.

PayPal Earnings: Impressive

PayPal reported first-quarter 2018 non-GAAP earnings of 57 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents. The figure increased 29.5% on a year-over-year basis and 3.6% sequentially. The year-over-year growth was driven by strong operating results.

Net revenues increased 24.2% year over year but decreased 0.5% sequentially to $3.69 billion, beating the Zacks Consensus Estimate of $3.58 billion. The year-over-year growth was attributed to an improved customer base, which boosted total active accounts significantly in the first quarter.

For second-quarter 2018, PayPal expects revenues between $3.78 billion and $3.83 billion, reflecting growth in the range of 21-22% at current spot rate and 19-20% on an FX-neutral basis. Non-GAAP earnings are anticipated within the range of 54-56 cents per diluted share.

Shares of PayPal were up about 2.9% on Apr 26. The stock comes from a top-ranked Zacks industry (top 35%).

Bottom Line

Both companies are transforming. eBay is cashing in on its structured data and Artificial Intelligence (AI) strength while PayPal is focusing on inorganic growth via several partnerships. As of now, PayPal saw fast success thanks to the rapid emergence of digital payment while eBay faces tough competition from the likes of Amazon (AMZN - Free Report) . While a single stock-pick is always an option, a basket approach gives greater protection.

So, investors intending to ride on eBay’s gradual transformation on lesser risk may target First Trust Nasdaq Retail ETF (FTXD - Free Report) , PowerShares Nasdaq Internet Portfolio (PNQI - Free Report) and First Trust Dow Jones Internet Index (FDN - Free Report) (read: ETFs Set to Surge on Robust Q1 Facebook Results).

And many investors would definitely want to fly high with PayPal, especially after the Q1 earnings results. They can focus on the likes of First Trust US IPO Index Fund (FPX - Free Report) , Guggenheim Spin-Off ETF (CSD - Free Report) and Global X FinTech ETF (FINX - Free Report) (read: What Investors Need to Know about the Internet of Things ETF).

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