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What to Expect When PayPal Reports Earnings

Danny Vena, The Motley Fool

Since its reemergence as a public company, PayPal's (NASDAQ: PYPL) performance has been nothing short of spectacular. Investors couldn't possibly have envisioned the string of credit card and big bank partnerships the company has made that have allowed it to become a world-class digital payment system. The result has been a stock price that has tripled, compared with a 40% gain for the S&P 500 (SNPINDEX: ^GSPC).

The company has also been remarkably consistent in providing conservative guidance, exceeding its forecast, and raising its full-year targets -- a practice aptly named "beat-and-raise."

PayPal will soon once again make its case to investors; it's scheduled to report the results of its just-completed first quarter after the market close on April 24. Let's recap PayPal's fourth-quarter results and review a recent announcement to see if it provides any insight into what investors can expect when the company reports earnings.

The PayPal logo displayed outside the company headquarters.

Image source: PayPal.

Strong results

For the fourth quarter, PayPal reported revenue of $4.23 billion, up 13% year over year, resulting in non-GAAP diluted earnings per share of $0.69, an increase of 26%. Both figures topped the high end of the company's guidance.

Strength in the underlying business metrics helped boost the financial results. PayPal added 13.8 million net new active accounts for the quarter -- 59% more than it added in the year-ago quarter. Though 2.9 million of those accounts came from the recent acquisitions of Hyperwallet and iZettle. Organically, new accounts of 10.9 million were 25% greater than the accounts PayPal added in the same period last year. Existing customers were more engaged. Transactions per active account over the trailing 12-month period grew to 36.9, up 9% year over year.

Total payment volume (TPV) continues to march higher, topping $164 billion, up 25% on a currency-neutral basis. Person-to-person (P2P) payments -- including Venmo -- were up 46% year over year to $39 billion, now accounting for 24% of TPV.

Recent events

Long-term followers of PayPal will find this news as exciting as it is ironic.

Several years after the advent of the dot-com era, eBay (NASDAQ: EBAY) made a number of strategic investments to expand its empire. In 2001, the company came to an agreement with Latin American e-commerce leader MercadoLibre (NASDAQ: MELI). eBay traded its Brazilian online trading platform, iBazar, in exchange for a 19.5% stake in MercadoLibre. Shortly thereafter, in 2002, eBay acquired PayPal.

During the past several years, eBay has been divesting some of its key business, spinning off PayPal in July 2015, and selling off its remaining 18% stake in MercadoLibre in October 2016.

Just last month, PayPal announced that it was making a strategic investment in MercadoLibre, acquiring $750 million of the company's stock, connecting the eBay alumni. In a prepared statement, PayPal President and CEO Dan Schulman commented on the move. "Digital commerce in Latin America is experiencing tremendous growth and MercadoLibre is well positioned for continued leadership," he said. "We've been impressed with the digital commerce and payments ecosystem Marcos [Galperin, MercadoLibre's CEO] and his team have built." 

What the quarter could hold

PayPal has been fairly consistent with its beat-and-raise, so investors shouldn't expect things to be much different this quarter. PayPal has forecast revenue in a range of $4.08 billion to $4.13 billion, up between 11% and 12% year over year. The company is also projecting adjusted earnings per share (EPS) in a range of $0.66 to $0.68.

While investors don't want to be seduced by Wall Street's short-term thinking, it can be helpful to understand the prevailing market sentiment for a company going into its financial release. Analysts' consensus estimates are calling for revenue of $4.13 billion and EPS of $0.68, placing both squarely at the high end of management's guidance.

With a pole position in the trend toward digital payment systems and remarkable history of success, there isn't any reason to believe things will be any different when PayPal reports earnings on April 24.

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Danny Vena owns shares of MercadoLibre and PayPal Holdings. The Motley Fool owns shares of and recommends MercadoLibre and PayPal Holdings. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.