PayPal (PYPL) To Report Q4 Earnings: What's In The Offing?

PayPal Holdings, Inc. (NASDAQ:PYPL) is scheduled to report fourth-quarter 2019 results on Jan 29.

For the fourth quarter, the company expects revenues between $4.89 billion and $4.95 billion, suggesting improvement of 16-17% at current spot rate and 17-18% at FX-neutral basis. The Zacks Consensus Estimate for revenues is pegged at $4.94 billion.

Non-GAAP earnings are anticipated to be 81-83 cents per share. The Zacks Consensus Estimate for earnings stands at 83 cents per share.

Notably, the company surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with a surprise of 12.85%, on average.

In the third quarter, PayPal reported earnings of 61 cents per share, with a positive surprise of 17.31%. The figure also rose 5.2% on a year-over-year basis.

Net revenues of $4.378 billion increased 19% from the year-ago quarter. However, the figure surpassed the Zacks Consensus Estimate of $4.341 billion.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

PayPal’s expanding product portfolio is expected to have aided its performance in the to-be-reported quarter.

The company completed the acquisition of 70% equity interest in Guofubao Information Technology Co., Ltd. (GoPay) in the fourth quarter. The buyout expanded services portfolio of PayPal and aided it to make inroads into the digital payment service market in China.

In the soon-to-be-reported quarter, the company’s international money transfer service called Xoom unveiled domestic money transfer services in the United States. Notably, the service helps customers send money for quick cash pick-up in partnership with Walmart (NYSE:WMT) and Ria.

Xoom introduced bank deposits, which allows customers in the United States, the U.K., Canada and 31 markets across Europe to send money directly to the bank accounts of people in South Korea.

Further, PayPal collaborated with Citi (NYSE:C) to strengthen the adoption rate of its digital wallets. The move has brought together Citi’s large global network and client base, and PayPal’s two-sided network of consumers and businesses.

All these growth endeavors are expected to have contributed well to the total payments volume (TPV) of PayPal in the quarter under review.

Venmo’s improving monetization efforts are helping the company attract partners to its platform. This is likely to have bolstered PayPal’s customer engagement, which, in turn, is expected to have driven payment volume growth in the to-be-reported quarter.

Furthermore, the company’s growing mobile initiatives and One Touch are anticipated to have contributed well to its customer and merchant base in the fourth quarter. Also, solid momentum in P2P, owing to the company’s innovative and advanced products and services, is likely to have continued in the quarter under review.

Additionally, the impacts of the acquisition of Hyperwallet, which has expanded PayPal’s payout capabilities, are likely to get reflected in the to-be-reported quarter’s results.

Key Metrics in Q4

TPV, active customer accounts, payment transactions per active account and total number of payment transactions are considered to be the key metrics for analyzing PayPal’s business growth.

We believe that all of the above-mentioned factors are expected to have contributed well to the metrics in the fourth quarter.

For the fourth quarter, the Zacks Consensus Estimate for active customer accounts is pegged at 305 million, up 14.2% from the year-ago reported figure.

Further, the consensus mark for payment transactions per active user is pegged at 40.8 million, suggesting growth of 10.6% year over year. Moreover, the consensus estimate for total number of payment transactions stands at 3.57 billion, indicating an improvement of 24.7% from the prior-year quarter’s reported figure.

Furthermore, the Zacks Consensus Estimate for TPV is pegged at $202.7 billion, indicating growth of 23.9% on a year-over-year basis.

However, declining eBay (NASDAQ:EBAY) volume is likely to have remained a headwind for the company’s TPV. Further, rising competitive pressure from Square (NYSE:SQ) and Alphabet’s (NASDAQ:GOOGL) Google is likely to get reflected in the company’s fourth-quarter results.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for PayPal this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PayPal has an Earnings ESP of +3.11% and a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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