PayPal Smashes Earnings: Why Did the Stock Fall?
November 3, 2020
PayPal Inc (NASDAQ: PYPL), the digital payments firm, saw its shares plunge 5.7% in after-hours trading following its latest earnings report. Was it an overreaction?
Tim’s Take:
Growth is slowing for PayPal. Yet the digital payments giant still beat expectations for its latest earnings. Revenue was up 25% year-on-year to an impressive US$5.5 billion.
Meanwhile, total payment volume (TPV) – key metric for the company – soared by 36% year-on-year to a record US$247 billion.
So why have shares fallen? Most likely expectations are high given PayPal’s near-75% gain so far in 2020. However, that shouldn’t deter long-term investors from the company’s clear tailwinds.
Even though CEO Dan Schulman called the latest quarter “one of the strongest quarters in PayPal’s history”, short-term traders were selling out on guidance which was lower than expected.
The company guided for adjusted earnings of 17-18% for the fourth quarter – down significantly from the red-hot 41% growth recorded for the most recent quarter.
Structural growth
The “war on cash” doesn’t seem like it’s going to end any time soon and PayPal will be one of the key beneficiaries of that.
This is even more acute in the age of coronavirus where paper money is deemed “dirty”. According to a recent survey in the US, 54% of Americans are concerned about touching coins or bills due to Covid-19 while 60% are planning to use touchless forms of payment in the future.
PayPal has been quick to position itself in this new normal. During the third quarter, the company launched the Venmo Credit Card in partnership with Visa Inc (NYSE: V), which integrates with its popular cash transfer app Venmo.
Applications are seamless, and can be done via the Venmo app, while rewards can be matched to your spending preferences. It’s all part of building that payments ecosystem that PayPal is so fond of working towards.
For me, I see the likes of PayPal moving towards the model that Chinese fintech giant Ant Group (which is listing this week in Hong Kong and Shanghai) has perfected.
Being able to invest, save, send money, buy insurance and instantly pay should be the holy grail for PayPal’s management.
Only time will tell whether they can succeed to Ant’s degree but its latest quarter should reassure long-term investors that the company is certainly on the right track.
Disclaimer: ProsperUs Head of Content owns shares of PayPal Inc.
This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.
This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
Tim Phillips
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.