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Paypal (PYPL) Down 2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Paypal (PYPL - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paypal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
PayPal delivered second-quarter 2018 non-GAAP earnings of 58 cents per share, which surpassed the Zacks Consensus Estimate by 2 cents. The figure increased 28% on a year-over-year basis and 1.7% sequentially.
Net revenues increased 23% year over year and 4.6% sequentially to $3.86 billion beating the Zacks Consensus Estimate of $3.82 billion.
Top-line growth can be attributed to improved customer base which bolstered the total active accounts significantly in the second quarter. Further, improving engagement rate on PayPal’s platform and robust performance of Choice drove the results further.
Moreover, the company’s growing number of strategic acquisitions remained positive throughout the quarter.
Top Line in Detail
By Type: Transaction revenues came in $3.32 billion (86% of net revenues), up 20% 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 $539 million of revenues (14% of revenues), increasing 49.3% year over year. This can primarily be attributed to the positive contributions from the acquisition of Swift Financial and proceeds from portfolio that is held for sale.
By Geography: Revenues from the United States came in $2.15 billion (55.7% of net revenues), surging 27.2% on a year-over-year basis. International revenues were $1.71 billion (44.3% of revenues), advancing 18% from the prior-year quarter.
Quarter in Detail
PayPal’s strategic partnerships, expanding product & services portfolio along with strengthening presence in global market has led to massive increase in its total payment volume (TPV).
Moreover, the company’s ongoing partnership with ShinhanCard continues to strengthen its customer base. Notably, ShinhanCard is credit card issuer based in South Korea. Also, the company’s tie-up with MasterCard aided the adoption rate of Venmo.
Further, PayPal’s partnership extension with Alphabet’s (GOOGL) Google in the second quarter remained a catalyst. The company announced that its U.S. customers will be able to sync their PayPal account with all the Google services.
Further, the company extended its tie-up with eBay (EBAY) in the reported quarter. Owing to this extension, PayPal Credit will continue to be accepted on eBay’s marketplace.
PayPal’s partnerships with Santander, Clydesdale and HDFC Bank also continued to fortify its presence in the U.K. and India which aided the customer base expansion.
Additionally, the company’s strong initiatives toward enhancement of Choice resulted in its growing adoption worldwide.
Further, PayPal was on acquisition spree in the second quarter. The company completed the buyout of Jetlore. It also announced the acquisitions of iZettle, Hyperwallet and Simility.
Upswing in Metrics
With the help of these endeavors, the company witnessed 15.1% year-over-year growth in its total active accounts by adding 7.7 million net new active accounts, which grew 18% from the year-ago quarter. The total number of active accounts was 244 million in the quarter, matching the Zacks Consensus Estimate.
Additionally, total number of payment transactions came in 2.33 billion, up 28% on a year-over-year basis. The figure topped the Zacks Consensus Estimate of 2.29 billion.
Further, the company’s payment transactions per active user were 35.7 million, which increased 9% from the year-ago quarter. It topped the Zacks Consensus Estimate of 35.4 million.
TPV came in $139.4 billion in the second quarter, surging 29.3% on a year-over-year basis but missed the Zacks Consensus Estimate of $139.9 billion.
PayPal processed $54 billion in mobile payment volume, up 49% year over year and accounted for 39% of TPV. This upsurge can be attributed to Venmo which continued to perform well as it processed $14.2 billion of TPV and soared 78% year over year.
Moreover, the company was benefited from increasing use of internet and mobile. The company recorded 102 million customers and 9.5 million merchants using One Touch in the second quarter.
Also, payment volume on P2P platform was $33 billion, up 50% from the year-ago quarter and accounted for 24% of TPV.
Additionally, merchant services volume was $123 billion, up 30% year over year and eBay volume came in $17 billion, advancing 6% from the year ago quarter. Further, the company witnessed more than 19.5 million merchants on its platform at the end of the second quarter.
Operating Details
Non-GAAP operating margin came in 21%, which expanded 30 basis points (bps) on a year-over-year basis but contracted 70 bps sequentially. Further, non-GAAP net income was $703 million, up 26.9% on a year-over-year basis and 1.6% sequentially.
Adjusted operating expenses were $3.28 billion in the second quarter, climbing 21% from the prior-year quarter and 4.1% on a sequential basis.
Balance Sheet & Cash Flow
As of Jun 30, 2018, cash equivalents and investments came in $6.3 billion which remained same with that as of Mar 31, 2018.
Free cash flow was a negative figure of $170 million due to sale accounting impact of $907 million on the U.S. consumer credit portfolio. By adjusting this, the company would have generated $737 million.
PayPal also repurchased 6.1 million shares worth $500 million in the reported quarter.
Additionally, the company announced that its Board of Directors has approved the authorization to $10 billion share buyback program.
Guidance
For third-quarter 2018, PayPal expects revenues between $3.62 billion and $3.67 billion, growing in the range of 12-13% on both current spot rate and FX-neutral basis.
Non-GAAP earnings are anticipated to lie within the range of 53-55 cents per diluted share.
The company also projects stock-based compensation expense and related payroll taxes between $210 million and $220 million.
For 2018, PayPal has revised expectations for revenues which are now anticipated to lie between $15.30 billion and $15.50 billion, growing at 17-19% at current spot rates and 16-18% on an FX-neutral basis.
Further, non-GAAP earnings are expected to lie in the range of $2.32-$2.35 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Paypal has a subpar Growth Score of D, however its momentum is doing a bit better with a C. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Paypal (PYPL) Down 2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Paypal (PYPL - Free Report) . Shares have lost about 2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paypal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Recent Earnings
PayPal delivered second-quarter 2018 non-GAAP earnings of 58 cents per share, which surpassed the Zacks Consensus Estimate by 2 cents. The figure increased 28% on a year-over-year basis and 1.7% sequentially.
Net revenues increased 23% year over year and 4.6% sequentially to $3.86 billion beating the Zacks Consensus Estimate of $3.82 billion.
Top-line growth can be attributed to improved customer base which bolstered the total active accounts significantly in the second quarter. Further, improving engagement rate on PayPal’s platform and robust performance of Choice drove the results further.
Moreover, the company’s growing number of strategic acquisitions remained positive throughout the quarter.
Top Line in Detail
By Type: Transaction revenues came in $3.32 billion (86% of net revenues), up 20% 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 $539 million of revenues (14% of revenues), increasing 49.3% year over year. This can primarily be attributed to the positive contributions from the acquisition of Swift Financial and proceeds from portfolio that is held for sale.
By Geography: Revenues from the United States came in $2.15 billion (55.7% of net revenues), surging 27.2% on a year-over-year basis. International revenues were $1.71 billion (44.3% of revenues), advancing 18% from the prior-year quarter.
Quarter in Detail
PayPal’s strategic partnerships, expanding product & services portfolio along with strengthening presence in global market has led to massive increase in its total payment volume (TPV).
Moreover, the company’s ongoing partnership with ShinhanCard continues to strengthen its customer base. Notably, ShinhanCard is credit card issuer based in South Korea. Also, the company’s tie-up with MasterCard aided the adoption rate of Venmo.
Further, PayPal’s partnership extension with Alphabet’s (GOOGL) Google in the second quarter remained a catalyst. The company announced that its U.S. customers will be able to sync their PayPal account with all the Google services.
Further, the company extended its tie-up with eBay (EBAY) in the reported quarter. Owing to this extension, PayPal Credit will continue to be accepted on eBay’s marketplace.
PayPal’s partnerships with Santander, Clydesdale and HDFC Bank also continued to fortify its presence in the U.K. and India which aided the customer base expansion.
Additionally, the company’s strong initiatives toward enhancement of Choice resulted in its growing adoption worldwide.
Further, PayPal was on acquisition spree in the second quarter. The company completed the buyout of Jetlore. It also announced the acquisitions of iZettle, Hyperwallet and Simility.
Upswing in Metrics
With the help of these endeavors, the company witnessed 15.1% year-over-year growth in its total active accounts by adding 7.7 million net new active accounts, which grew 18% from the year-ago quarter. The total number of active accounts was 244 million in the quarter, matching the Zacks Consensus Estimate.
Additionally, total number of payment transactions came in 2.33 billion, up 28% on a year-over-year basis. The figure topped the Zacks Consensus Estimate of 2.29 billion.
Further, the company’s payment transactions per active user were 35.7 million, which increased 9% from the year-ago quarter. It topped the Zacks Consensus Estimate of 35.4 million.
TPV came in $139.4 billion in the second quarter, surging 29.3% on a year-over-year basis but missed the Zacks Consensus Estimate of $139.9 billion.
PayPal processed $54 billion in mobile payment volume, up 49% year over year and accounted for 39% of TPV. This upsurge can be attributed to Venmo which continued to perform well as it processed $14.2 billion of TPV and soared 78% year over year.
Moreover, the company was benefited from increasing use of internet and mobile. The company recorded 102 million customers and 9.5 million merchants using One Touch in the second quarter.
Also, payment volume on P2P platform was $33 billion, up 50% from the year-ago quarter and accounted for 24% of TPV.
Additionally, merchant services volume was $123 billion, up 30% year over year and eBay volume came in $17 billion, advancing 6% from the year ago quarter. Further, the company witnessed more than 19.5 million merchants on its platform at the end of the second quarter.
Operating Details
Non-GAAP operating margin came in 21%, which expanded 30 basis points (bps) on a year-over-year basis but contracted 70 bps sequentially. Further, non-GAAP net income was $703 million, up 26.9% on a year-over-year basis and 1.6% sequentially.
Adjusted operating expenses were $3.28 billion in the second quarter, climbing 21% from the prior-year quarter and 4.1% on a sequential basis.
Balance Sheet & Cash Flow
As of Jun 30, 2018, cash equivalents and investments came in $6.3 billion which remained same with that as of Mar 31, 2018.
Free cash flow was a negative figure of $170 million due to sale accounting impact of $907 million on the U.S. consumer credit portfolio. By adjusting this, the company would have generated $737 million.
PayPal also repurchased 6.1 million shares worth $500 million in the reported quarter.
Additionally, the company announced that its Board of Directors has approved the authorization to $10 billion share buyback program.
Guidance
For third-quarter 2018, PayPal expects revenues between $3.62 billion and $3.67 billion, growing in the range of 12-13% on both current spot rate and FX-neutral basis.
Non-GAAP earnings are anticipated to lie within the range of 53-55 cents per diluted share.
The company also projects stock-based compensation expense and related payroll taxes between $210 million and $220 million.
For 2018, PayPal has revised expectations for revenues which are now anticipated to lie between $15.30 billion and $15.50 billion, growing at 17-19% at current spot rates and 16-18% on an FX-neutral basis.
Further, non-GAAP earnings are expected to lie in the range of $2.32-$2.35 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, Paypal has a subpar Growth Score of D, however its momentum is doing a bit better with a C. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.