A month has gone by since the last earnings report for PayPal Holdings, Inc. (PYPL - Free Report) . Shares have added about 9.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is PYPL due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
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 improved customer base which boosted the total active accounts significantly in the first quarter. Moreover, the company’s ongoing strategic partnerships remained positive.
Top Line in Detail
By Type: Transaction revenues came in $3.19 billion (86.4% of net revenues), which were up 23.2% from the year-ago quarter. This was driven by strong performance of core PayPal and Braintree businesses during the quarter.
Other value added services generated $488 million of revenues (13.2% of revenues), which also increased 29.8% year over year. This was attributed to the benefits from the acquisition of Swift and zero reserves on interest receivables.
By Geography: Revenues from the United States came in $2.02 billion (54.7% of net revenues), which were up 26.2% on a year-over-year basis. International revenues were $1.67 billion (45.2% of revenues), which surged 21.9% from the prior-year quarter. This was driven by payment volume growth of 28% and 25% in the U.S. and international market, respectively.
Quarter in Detail
PayPal’s strategic partnerships, expanding product & services portfolio and strengthening footprints in global market has led to massive increase in its total payment volume (TPV).
PayPal’s new partnerships with CaixaBank, Bankia, HSBC and Barclays Bank in the first quarter helped the company boost its customer base. Customers of these banks are now able to link their accounts with their PayPal wallet and make payments easily.
Moreover, the company’s ongoing partnerships with Apple (AAPL), Google, Facebook (FB) and Microsoft (MSFT) continued to benefit the company.
Further, in collaboration with JP Morgan and Bank of America, PayPal introduced new services and offers for the debit and credit card users. This also attracted customers to the PayPal platform.
With the help of these endeavors, the company witnessed 15% growth in its active accounts by adding 8.1 million net new active accounts. The total number of active accounts was 237 million in the quarter, which surpassed the Zacks Consensus Estimate of 233 million.
Additionally, total number of payment transactions came in 2.21 billion, up 25% on a year-over-year basis. The figure also topped the Zacks Consensus Estimate of 2.17 billion.
Also, the company’s payment transactions per active user were 34.7 million, which increased 8% from the year-ago quarter. It topped the Zacks Consensus Estimate of 34.5 million.
TPV came in $132.3 billion in the first quarter, which surged 32% on a year-over-year basis and also came ahead of the Zacks Consensus Estimate of $128.6 billion.
PayPal processed $49 billion in mobile payment volume, up 52% year over year and accounted for 37% of TPV. Venmo also continued to perform well as it processed $12 billion of TPV.
Also, the company was benefited from increasing use of internet and mobile. The company recorded 92 million customers and 8.6 million merchants using One Touch in the first quarter.
Also, payment volume on P2P platform was $30 billion, up 50% from the year-ago quarter and accounted for 23% of TPV.
Additionally, merchant services volume was $116 billion, up 30% and eBay volume came in $17 billion, which grew 6% from the year ago quarter.
Non-GAAP operating margin came in 22%, which expanded 40 basis points (bps) year over year and 20 bps sequentially. Also, non-GAAP net income of was $692 million, which was up 29.6% on a year-over-year basis and 3.3% sequentially.
Adjusted operating expenses were $3.15 billion in the first quarter, which went up 24% from the prior year quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2018, cash equivalents and short-term investments were $6.306 billion compared to $5.695 billion as of Dec 31, 2017. Free cash flow was negative figure of $527 million due to sale accounting of $1.3 billion on the U.S. consumer credit portfolio. By adjusting this, the company would have generated $733 million.
PayPal also repurchased its shares worth of $1.8 billion in the quarter.
For the second-quarter 2018, PayPal expects revenues between $3.78 billion and $3.83 billion, growing in the range of 21-22% at current spot rate and 19-20% on an FX-neutral basis.
Non-GAAP earnings are anticipated to lie within the range of 54-56 cents per diluted share.
The company also expects stock-based compensation expense and related payroll taxes between $225 million and $235 million.
For 2018, PayPal expects revenues between $15.20 billion and $15.40 billion, growing at 16 - 18% at current spot rates and 15-16% on an FX-neutral basis.
Further, non-GAAP earnings are expected to lie in the range of $2.31-$2.34 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to three lower.
At this time, PYPL has a poor Growth Score of F and a grade with the same score on the momentum front. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that investors will probably be better served looking elsewhere.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, PYPL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.