PayPal is scheduled to release its first earnings report since its spinoff and July initial public offering, and investors and analysts are likely to have a lot of questions. Despite the separation of PayPal and eBay, the stocks of both companies remain linked, at least for now.
eBay surprises Wall Street
Former parent company eBay pleasantly surprised investors in its report on Wednesday, and shares soared during regular trading hours today, climbing as much as 13.05% to $27.36 per share. PayPal shares also rose today, moving up by as much as 3.13% to $34.89 per share.
Some analysts believe that eBay has already benefited from being able to narrow its focus by spinning off PayPal, which could be why the auction giant surprised to the positive. The same could be true of PayPal, although worries about rising competition in the digital payments industry continue to loom over the company.
Pressing questions for PayPal
In a report dated Oct. 21, BTIG analysts Mark Palmer and Giuliano Bologna said next week’s earnings report gives PayPal management an opportunity to address the concerns that have been a drag on the company’s stock. They expect PayPal to post adjusted earnings of 28 cents per share, which is a penny behind the consensus estimate.
The BTIG team believes in order for PayPal shares to respond positively to the third quarter report, management must reiterate their guidance for the full year. If PayPal cuts its guidance, it could signal that the worries about competition are indeed real. They think it is likely that management will reiterate their guidance because on Sept. 17, CEO Dan Schulman said during a presentation to investors that they stood “firmly behind” their previously provided guidance.
PayPal had said they expect revenue to grow by 15% to 18% on a currency neutral basis this year. The digital payments firm also said they expect to add between 3 million and 5 million new active users per quarter and that the number of transactions per user and revenue per user will grow steadily in each quarter.
Other possible commentary from PayPal
Palmer and Bologna also believe PayPal management could address two more big events that took place during the third quarter. The company won Macy’s as a new client, announcing last month that the department store chain was enabling PayPal transactions in its stores, on its website, and in its app. This was a particularly big win for PayPal because it has been struggling to sign on brick and mortar retailers to accept its service. PayPal also avoided losing ride-sharing firm Uber, which is a client of its Braintree division.
One thing the BTIG team does not expect to hear anything about is the company’s potential acquisition strategy. They noted that PayPal had $6.2 billion in cash on its balance sheet when it was spun off from eBay. When combining that with the $1.6 billion to $1.8 billion in free cash flow management expected this year, it becomes possible that the payments processor could start pursuing acquisitions or strategic investments. Palmer and Bologna believe concerns about disclosure could prevent management from talking about this.
BTIG has a Buy rating and $48 per share price target on PayPal.