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PayPal (PYPL) to Post Q2 Earnings: What's in the Offing?

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PayPal Holdings, Inc. (PYPL - Free Report) is set to report second-quarter 2018 results on Jul 25.

The company topped the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 6.35%.

In the last reported quarter, PayPal’s earnings of 57 cents per share grew 29.5% on a year-over-year basis and 3.6% sequentially. The figure also surpassed the Zacks Consensus Estimate by 3 cents.

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.

Improving total active accounts on the back of expanding customer base drove year-over-year growth. Moreover, the company’s ongoing strategic partnerships remained positive.

For the second-quarter 2018, PayPal expects revenues between $3.78 billion and $3.83 billion. Non-GAAP earnings are anticipated to lie within the range of 54-56 cents per diluted share.

Let’s see how things are shaping up for this quarter.

Key Metrics to Drive Growth

PayPal’s business is highly dependent on its active customer accounts and total payment volume (TPV). The company has been witnessing massive growth in these two metrics over the past several quarters.

For the second quarter, the Zacks Consensus Estimate for active customer accounts is pegged at 244, which shows year-over-year growth of 16.2%. Further, the consensus estimate for TPV is projected at $139.9 billion, reflecting an improvement of 31.9% from the year-ago quarter.

The upswing can primarily be attributed to strong adoption of PayPal’s payment solutions, strengthening presence in the global market and strategic partnerships.

Strong performance of Venmo and global expansion of Choice will continue to boost the active customer base and TPV.

Further, the company’s new partnerships with CaixaBank, Bankia, HSBC and Barclays Bank remain positive since the customers of these banks are now able to link their accounts with their PayPal wallet and make payments easily.

Nevertheless, the company’s ongoing partnerships with tech firms like Apple (AAPL - Free Report) , Facebook (FB - Free Report) , Google and Microsoft are major positives.

Strategic Acquisitions to Benefit

Strategic acquisitions have been playing a significant role in shaping the growth trajectory of the company. In the to-be-reported quarter, the company has announced quite a few buyouts which remain positive for the quarter results.

PayPal acquired iZettle, which is marked as its biggest acquisition to date. This is in sync with the company’s improving merchant base and offline reach in the United States, the U.K. and Australia. Moreover, the buyout of Jetlore has leveraged the product portfolio of the company with the power of artificial intelligence (AI).

Additionally, the company has entered into definitive agreement to acquire Hyperwallet and Simility. All these endeavors of the company bode well for its expanding product and services portfolio which will continue to bolster its customer base.

However, mounting acquisition expenses, integration risk and intensifying competition in the online payment space are major concerns for the company.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PayPal currently has a Zacks Rank #3 but an Earnings ESP of -0.22%. Our proven model indicates that the company is unlikely to beat estimates.

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