PayPal PYPL is up an impressive 42.5% YTD, continuing a very strong growth trend since the company’s spin-off from eBay EBAY. Here’s what investors should expect from PYPL’s Q2 earnings report.
PayPal is an operator of a worldwide online payments system that had $578 billion in total transfers during 2018. The company offers a variety of services and platforms including PayPal, PayPal Credit, Venmo, and Braintree.
The company was founded in 1998 by Peter Thiel and others. It later merged with X.com, an online banking company founded by Tesla’s TSLA Elon Musk. EBay bought the firm shortly after its IPO in 2002, and held it until the spinoff in 2015.
PYPL launched a new service recently called Xoom, to better serve European markets. This platform will allow residents of 32 European countries to send money to recipients in more than 130 countries worldwide. The transactions are completed the next day and cost between $4 and $9. However, Xoom is already in danger of becoming obsolete. A few international money transfer services, like Ripple and Banco Santander’s SAN One Pay FX, have adopted blockchain technology, and are able to offer same-day transfers that cost just cents.
Some industry experts, like BitMEX CEO Arthur Hayes, are extremely bearish on traditional banking services like PayPal. He says that the service will become obsolete once a widely accepted cryptocurrency is established, as payments with cryptocurrency are extremely quick and cheap. He goes even further to say that if a centralized currency can take hold like Facebook’s FB Libra, banks themselves will struggle to stay afloat. However, cryptocurrency is still in its infancy, with only 200,000 to 400,000 transactions completed per day.
PayPal recently invested an undisclosed amount into Cambridge Blockchain. The company is developing and operating a technology to store, share, and validate data using blockchain that can operate on top of any kind of distributed ledger. For example, it is currently working with Foxconn to securely distribute commercially sensitive supply chain data. Cambridge is also working with banks to create a more efficient new customer vetting process.
In the near term though, PayPal could be a very attractive option for investors as the fintech space continues to grow. PYPL’s quarterly revenues have increased year over year for every quarter since the company went public after its spinoff, with $15.45 billion reported in 2018. In Q1 2019, revenues were up 12%. This growth rate is projected to hold, with 12.33% revenue growth projected for Q2 and 20.8% projected for next quarter, based on our current Zacks Consensus Estimates.
As a mostly technology-based company, PayPal has historically done a great job of keeping costs down. Earnings per share have increased every quarter in the company’s current iteration. Our Zacks Consensus Estimates show a projected increase of 29.3% over Q2 2018 to $0.75 per share. On the year, 25.2% EPS growth is projected for $3.03 per share.
The chart below shows just how stable and consistent PYPL has been in recent years. PYPL Stock price has grown about 3x since the company started trading and Consensus estimates all have a general uptrend for each year reported. PayPal has also outperformed the market by an impressive 23.9% YTD, while outperforming the Internet Software industry by 6.4%.
A strong pattern of earnings estimate revisions in the past 60 days has brought PYPL up to a Zacks Rank #2 (Buy). PayPal is scheduled to its report quarterly earnings results on Wednesday, July 24 after the market closes. Look for the possibility of the company’s history of strong revenue and earnings growth to continue. However, PayPal has some work to do in the long-term so that it can stay ahead of the rapidly changing fin-tech landscape.
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