A month has gone by since the last earnings report for Paypal (
PYPL Quick Quote PYPL - Free Report) . Shares have lost about 7.9% in that time frame, outperforming 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 catalysts.
PayPal's Q4 Earnings & Revenues Beat Estimates
PayPal Holdings 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) 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. However, 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. 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 volume, which was down 4% year over year in the reported quarter, remains a concern. 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. Non-GAAP earnings are anticipated in the range of 76-78 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. Further, the company expects 2020 non-GAAP earnings in the band of $3.39-$3.46 per share. This guidance excludes the impact of any gains and losses from the company’s strategic investment portfolio. How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -6.31% due to these changes.
Currently, Paypal has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.