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PayPal (PYPL) Q4 Earnings Beat Estimates, Revenues Up Y/Y

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PayPal Holdings, Inc. (PYPL - Free Report) reported non-GAAP earnings of 86 cents per share in fourth-quarter 2019, which surpassed the Zacks Consensus Estimate by 3.6%. The figure improved 24.6% on a year-over-year basis and 40.9% sequentially.

The company’s strategic investments contributed 2 cents to the bottom line during the fourth quarter. Notably, investment in MercadoLibre (MELI - Free Report) acted as a key catalyst.

Net revenues of $4.96 billion beat the Zacks Consensus Estimate by 0.3%. The figure improved 17.4% from the year-ago quarter on a reported basis and 18% on FX-neutral basis. Further, it advanced 13.3% from the prior quarter.

Growing total payment volume (TPV) owing to increasing net new active accounts contributed to the top line. Further, strong performance delivered by Venmo, One Touch, core PayPal and Braintree drove the transactions in the reported quarter. This remained a tailwind.

Additionally, Hyperwallet buyout remained a positive. In fact, the company witnessed solid demand for payouts capabilities courtesy of the acquisition during the reported quarter.

Following weak earnings guidance for the full year, shares of the company plunged 3.4% in the pre-market trading. The mid-point of the guided range for 2020 earnings is lower than the estimates. Moreover, the company has provided weak outlook for first-quarter earnings and revenues.

The company expects Honey and GoPay buyouts to hinder earnings growth in 2020. Further, eBay’s managed payments transition remains a concern.

Nevertheless, the company remains optimistic about investments in advanced technologies, which are expected to yield good returns. Further, its strategic acquisitions and partnerships bode well for its continuous efforts toward strengthening services portfolio.

All these factors are instilling investor confidence in the stock.

Notably, PayPal has returned 31.5% over a year, outperforming the industry’s rally of 14.9%.



Top Line in Detail

By Type: Transaction revenues came in at $4.53 billion (91% of net revenues), up 18% from the year-ago quarter. Other value-added services generated $426 million of revenues (accounting for 9% of net revenues), increasing 14% year over year.

By Geography: Revenues from the United States came in at $2.61 billion (53% of net revenues), up 19% on a year-over-year basis. International revenues were $2.35 billion (47% of revenues), improvement 16% from the prior-year quarter.

Key Metrics to Consider

PayPal witnessed year-over-year growth of 14.2% in total active accounts with the addition of 9.3 million net new active accounts during the reported quarter. The total number of active accounts was 305 million in the quarter, in line with the Zacks Consensus Estimate.

Additionally, the total number of payment transactions came in at 3.46 billion, up 21% on a year-over-year basis. Notably, the company processed 3.5 billion transactions in the reported quarter. However, the figure missed the Zacks Consensus Estimate of 3.57 billion.

Further, the company’s payment transactions per active account were 40.6 million, which increased 10% from the year-ago quarter, reflecting strong customer engagement on PayPal’s platform. However, the figure lagged the Zacks Consensus Estimate of 40.8 million.

TPV came in at $199.4 billion for the reported quarter, reflecting year-over-year growth of 22% on both spot rate and currency neutral basis, courtesy of core PayPal, Venmo and Braintree. However, the figure missed the Zacks Consensus Estimate of $202.7 billion.

Nevertheless, year-over-year growth in TPV was primarily driven by robust Venmo, which accounted for more than $29 billion of TPV, soaring 56% on a year-over-year basis driven by its strong monetization efforts. Notably, Venmo’s customer base crossed 52 million active accounts at the end of 2019.

Further, accelerating mobile volumes contributed $88 billion (44% of TPV), up 32% year over year. This can be attributed to robust mobile checkout services of One Touch, which had 14 million merchants and 199 million customers at the end of the fourth quarter.

Further, growing momentum of core peer to peer (P2P) contributed more than $53 billion (27% of TPV), up 35% from the prior-year quarter, owing to Venmo, Xoom and core PayPal contributions. Moreover, merchant services volume accounted for 92% of TPV. Merchant volume was also up 26% year over year, owing to core PayPal, Venmo and Braintree.

Additionally, cross-border trade volume was above $34 billion (17% of TPV), up 14% year over year.

However, eBay (EBAY) volume, which was down 4% year over year in the reported quarter, remains a concern.

PayPal Holdings, Inc. Price, Consensus and EPS Surprise

PayPal Holdings, Inc. Price, Consensus and EPS Surprise

PayPal Holdings, Inc. price-consensus-eps-surprise-chart | PayPal Holdings, Inc. Quote

Operating Details

PayPal’s operating expenses were $4.2 billion in the fourth quarter, up 14.7% from the prior-year quarter. As a percentage of net revenues, the figure contracted 190 bps year over year.

Consequently, non-GAAP non-GAAP operating margin came in at 23.6%, expanding 200 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash equivalents and investments came in at $10.8 billion, up from $10.5 billion on Sep 30, 2019.

PayPal had a long-term debt balance of $4.9 billion at the end of fourth quarter.

The company generated $1.3 billion of cash from operations, up from $1.1 billion in the previous quarter.

Free cash flow came in at $1.1 billion during the reported quarter, up from $923 million in the prior quarter.

Further, the company returned $305 million to the shareholders and repurchased 2.9 million shares.

Guidance

For first-quarter 2020, PayPal expects revenues between $4.78 billion and $4.84 billion, suggesting year-over-year improvement in the range of 16-17% at current spot rate and 17-18% at FX-neutral basis. The Zacks Consensus Estimate for the top line is pegged at $4.84 billion.

Non-GAAP earnings are anticipated in the range of 76-78 cents per share. The Zacks Consensus Estimate for the bottom line stands at 83 cents per share. This guidance includes contribution worth 2 cents from the PayPal’s strategic investment portfolio.

For 2020, PayPal anticipates revenues between $20.8 billion and $21 billion, suggesting improvement in the range of 17-18% at current spot rate and 18-19% at FX-neutral basis from 2019. The Zacks Consensus Estimate for revenues is projected at $20.69 billion.

Further, the company expects 2020 non-GAAP earnings in the band of $3.39-$3.46 per share. The Zacks Consensus Estimate for earnings is currently pegged at $3.48 per share. This guidance excludes the impact of any gains and losses from the company’s strategic investment portfolio.

Zacks Rank & Stocks to Consider

Currently, PayPal carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector are Itron, Inc. (ITRI - Free Report) and NetEase, Inc. (NTES - Free Report) . While Itron sports a Zacks Rank #1 (Strong Buy), NetEase carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Itron and NetEase is currently pegged at 25% and 41.99%, respectively.

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