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eBay vs. PayPal ETFs: Which to Pick After Q4 Earnings?

Sanghamitra Saha

It’s been more than three years since eBay Inc. (EBAY) parted wayswith the payment processing company PayPal Holdings Inc. (PYPL).

PayPal is now valued at $108.9 billion, more than 130% higher than its valuation on its first trading day. On the other hand, eBay’s market cap has fallen to $32.81 billion from $34.63 billion in July 2015 — when they separated.

Both companies reported this week. Let’s take a look at how the two entities performed in their last reported quarter.

Latest Earnings Picture

eBay Earnings: Overall Beat

eBay Inc.’s fourth-quarter 2018 earnings surpassed the Zacks Consensus Estimate by 16 cents. Adjusted earnings of 71 cents increased 20.3% year over year. Gross revenues of $2.87 billion increased 6.3% (up 6% on a Fx-neutral basis) and were within the guided range of $2.85-$2.89 billion. Moreover, the top line surpassed the Zacks Consensus Estimate of $2.86 billion. Since reporting earnings on Jan 29 after market close, its shares lost only 0.1%. The stock belongs to a top-ranked Zacks industry (top 34%).

PayPal Earnings: Mixed

PayPal Holdings reported non-GAAP earnings of 69 cents per share in the fourth quarter of 2018, which surpassed the Zacks Consensus Estimate by a couple of cents and also increased 25.5% on a year-over-year basis. Moreover, net revenues improved 14% to $4.228 billion but missed the Zacks Consensus Estimate of $4.238 billion. Shares of PayPal were down about 4% followings its earnings release on Jan 30 after market close. The stock comes from a top-ranked Zacks industry (top 10%).

Bottom Line

Both companies are transforming. eBay is cashing in on its structured data and artificial intelligence strength while PayPal is focusing on inorganic growth via several partnerships.

As of now, PayPal highlighted three difficult areas like lingering ties to eBay, currency translation and slowing global growth, though management sounded contented about its record-breaking net new customer additions. With the U.S. dollar likely to remain subdued, currency pressure does not appear to be a big issue for 2019.

eBay is facing growth concerns and has “once again lowered marketplace growth expectations to a paltry 1 percent for 2019,” despite exponentially growing e-commerce activities of late. However, the company announced earlier this week that it will begin paying dividends, and added $4 billion to its stock repurchase program in order to pacify investors.

Why ETFs?

Overall, eBay turns out to be a more value-centric stock and currently has a Zacks Rank #2 (Buy). On the other hand, PayPal is more of a growth stock but has a Zacks Rank #4 (Sell), thanks to mixed fourth-quarter results.

As of now, PayPal is a beneficiary of the rapid emergence of digital payment while eBay faces tough competition from the likes of Amazon AMZN. Thus, if single stock-pick is turning out to be difficult, a basket approach will help you with greater portfolio protection.

So, investors intending to ride on eBay’s value quotient may target Online Retail ETF(ONLN), Global X E-commerce ETF (EBIZ) and Invesco Nasdaq Internet Portfolio PNQI (see all consumer discretionary ETFs here).

On the other hand, many investors would definitely want to fly high with PayPal, especially if there is no currency issue this year. They can focus on the likes of First Trust US IPO Index Fund FPX, Guggenheim Spin-Off ETF CSD and Global X FinTech ETF FINX (read: What Investors Need to Know about the Internet of Things ETF).

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