PayPal Smashes Earnings: Why Did the Stock Fall?

PayPal stock

Author: Tim Phillips

November 3, 2020

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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.

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About the Author: 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. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.