PayPal Earnings Preview: Here’s What To Expect

PayPal Holdings (PYPL) is scheduled to report first-quarter 2021 earnings on May 5 after the market closes. Over the past three months, shares of the online payments company have risen 7.1% to its most recent close of $259.09. A strong fiscal performance could send shares on an upward trajectory, so let’s take a closer look at what analysts on the Street are expecting.

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Earnings Preview

In the prior quarter, PayPal provided its financial outlook for the first quarter and FY21. In 1Q, PYPL expects revenues to rise 26% year-on-year excluding foreign currency fluctuations. The company anticipates non-GAAP diluted EPS to increase by around 50% year-on-year.

Analysts are expecting PYPL to report revenues of $5.9 billion, while the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $1.01 per share.

For FY21, the company has forecast total payment volume (TPV) to rise year-on-year on a percentage basis in the high 20’s, and revenues to be around $25.5 billion. The company expects an approximate 17% (currency neutral) year-on-year rise in revenues, that includes a 400-basis point impact from eBay’s switch to managed payments.

eBay spun-off PayPal in 2015 but until last year, purchases on eBay were still being processed through PayPal. This is likely to end this year following the development of eBay’s own payment platform, Managed Payments.

PYPL expects non-GAAP diluted EPS to increase year-on-year by approximately 17% in FY21.

Prior Period Results

PayPal’s 4Q earnings topped Street estimates as the company reported adjusted earnings of $1.08 per share, up 29% year-over-year, exceeding analysts’ expectations of $1 per share. Sales of $6.12 billion topped consensus estimates of $6.09 billion and rose 23% year-over-year, driven by higher payment volumes and the addition of net new active accounts. (See PayPal Holdings stock analysis on TipRanks)

Factors To Look For

PYPL continues to be optimistic when it comes to the growth of its international business, as the company saw a 31% year-on-year (currency neutral) increase in cross-border transactions in the fourth quarter. While PYPL anticipates fluctuations in exchange rates to have some impact on these transactions, it expects cross-border transactions to continue on their growth trajectory.

PYPL also wants to expand its product offerings with Venmo, and expects Venmo contributions to the company’s revenue growth to increase.

PYPL expects greater traction from its Buy Now, Pay Later model, with more customers opting for this model and transaction sizes continuing to grow. This could lead to higher transaction revenues for the company over the medium-to-long term. PYPL’s Buy Now, Pay Later model lets merchants in selected countries who are registered with PayPal offer their customers the choice of paying in installments. The company expects to expand the roll out of this model to additional countries later this year.

Recent Developments

PayPal is increasingly focusing on supporting cryptocurrencies on its platform. Last month, PYPL linked up with Paxos Trust Company to secure a first-of-its-kind conditional Bitlicense that will allow it to enable the buying and selling of cryptocurrencies on the Venmo app. Venmo is PYPL’s mobile payment service. Venmo customers will also be able to buy, sell and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

Similarly, in March this year, the company also introduced a new feature, Checkout with Crypto, that would enable PYPL’s US users to convert cryptocurrency to government-issued currency at checkout with no transaction fees.

In the same month, PYPL also announced the acquisition of Israel-based company, Curv, for an undisclosed amount. Curv is a cloud-based infrastructure security provider for digital assets. The acquisition is expected to close in the first half of this year.

Analyst Recommendations

Last week, Credit Suisse analyst Timothy Chiodo reiterated a Buy and a price target of $310 on the stock. Chiodo believes PYPL’s Venmo could increasingly contribute towards the revenue growth of the company.

Chiodo said in a note to investors, “Our analysis suggests that in 2019E the majority of Venmo revenue (~$365mm CSe) was driven by Instant Deposit (its first major monetized product), followed by the debit card (launched in 2018), and then Pay with Venmo.”

“By 2025E, our illustrative build suggests ~25% of Venmo revenue will be driven by products which either did not exist or were de minimis in 2020 (e.g., Venmo Credit Card, Business Profiles, bill-pay, cryptocurrency trading, etc.). Further, we expect Pay with Venmo alone will make up ~50% of Venmo’s 2025E revenue mix, making it the single largest contributor,” Chiodo added.

Overall, PYPL has a Strong Buy consensus rating based on 29 Buys and 4 Holds. The average analyst price target of $310.68 implies 18.5% upside potential from current levels.