It has been about a month since the last earnings report for Paypal (PYPL). Shares have added about 2.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Paypal due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
PayPal's Q1 Earnings & Revenues Surpass Estimates
PayPal Holdings reported non-GAAP earnings of $1.22 per share in first-quarter 2021, which surpassed the Zacks Consensus Estimate by 20.8%. Further, the figure improved 84% on a year-over-year basis and 12.9% sequentially.
Net revenues of $6.03 billion outpaced the Zacks Consensus Estimate of $5.9 billion. The figure exhibited year-over-year growth of 29% on a FX-neutral basis and 31% on a reported basis. However, it declined 1.4% from the prior quarter.
Year-over-year revenue growth was driven by a strong performance by Venmo and merchant services. Further, accelerating total payment volume (“TPV”), courtesy of increasing net new active accounts, contributed well.
Additionally, growing transaction revenues drove the results in the reported quarter.
The boom in digital payment space, owing to the coronavirus pandemic, has beena major tailwind. Further, PayPal’s portfolio strength and robust two-sided global payments platform are likely to continue benefiting its financial performance in the near term.
Top Line in Detail
By Type: Transaction revenues amounted to $5.6 billion (93% of net revenues), up 33% from the year-ago quarter. Other value-added services generated revenues of $412 million (accounting for 7% of net revenues), up 2% year over year.
By Geography: Revenues from the United States totaled $3.1 billion (51% of net revenues), up 24% on a year-over-year basis. International revenues were $2.9 billion (49% of revenues), up 38% from the prior-year quarter.
Key Metrics to Consider
PayPal witnessed year-over-year growth of 21% in total active accounts, with the addition of 14.5 million net new active accounts inthe reported quarter.The total number of active accounts was 392 million in the quarter under review.
Additionally, the total number of payment transactions was 4.4 billion, up 34% on a year-over-year basis.
Further, the company’s payment transactions per active account were 42.2million, which improved 7% from the year-ago quarter.
TPV amounted to $285.45 billion for the reported quarter, reflecting year-over-year growth of 50% and 46%on a spot rate and a currency-neutral basis, respectively.
Notably, year-over-year growth in TPV was primarily driven by robust Venmo, which accounted for $51 billion of TPV, surging 63% on a year-over-year basis on strong monetization efforts.
Further, merchant services, which contributed 94% to the TPV, and the volume generated from these services rose 54% year over year.
PayPal’s operating expenses were 4.9 billion in the first quarter, up 18.3% from the prior-year quarter. As a percentage of net revenues, the figure contracted 870 basis points (bps) year over year to 82.7%.
Further, non-GAAP operating margin was at 28%, expanding 100 bps from the year-ago quarter.
Balance Sheet & Cash Flow
As of Mar 31, 2021, cash equivalents and investments were $13.09 billion compared with $13.08 billion as ofDec 31, 2020.
PayPal had a long-term debt balance of $8.942 billion at the end of the first quarter compared with $8.939 billion at the end of the fourth quarter of 2020.
The company generated $1.8 billion of cash from operations, up from $1.3 billion in the previous quarter.
Free cash flow was at $1.5 billion inthe reported quarter compared with $1.1 billion in the prior quarter.
Further, the company returned $1.3 billion to shareholders by repurchasing 5.3 million shares.
For second-quarter 2021, PayPal expects revenues of $6.25 billion, and a year-over-year improvement of 19% at the current spot rate and 17% on a FX-neutral basis.
Non-GAAP earnings are expected to be $1.12 per share, suggesting year-over-year growth of 5%.
For 2021, PayPal anticipates revenues of $25.75 billion, which is likely to grow 20% at a current spot rate and 18.5% on a FX-neutral basis.
Non-GAAP earnings for 2021 are anticipated to be $4.70 per share, suggesting year-over-year growth of 21%.
Additionally, TPV for 2021 is likely to exhibit growth of30%. Also, net new active accounts are likely to be 52-55 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Paypal has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Paypal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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