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PayPal Q2 Earnings Impress Investors: ETFs to Win

Sanghamitra Saha

PayPal Holdings Inc.’s PYPL shares gained about 6.2% in the past two days (as of Jul 31, 2020) after the company reported non-GAAP earnings of $1.07 per share in second-quarter 2020, which surpassed the Zacks Consensus Estimate by 25.9%. Further, the figure improved 49% on a year-over-year basis and 62.1% sequentially.

Net revenues of $5.3 billion outpaced the Zacks Consensus Estimate of $4.9 billion. The figure improved 22% from the year-ago quarter on a reported basis and 25% on the FX-neutral basis. The top line also increased 13.9% from the prior quarter.

Quarter in Detail

PayPal witnessed year-over-year growth of 21% in total active accounts. Positive contributions from the Honey acquisition contributed to growth in the net new active number. The total number of active accounts was 346 million in the quarter under review, which surpassed the Zacks Consensus Estimate of 341 million.

Growing total payment volume (TPV) courtesy of increasing net new active accounts contributed to year-over-year top-line growth. The total number of payment transactions came in at 3.7 billion, up 26% year over year and ahead of the Zacks Consensus Estimate of 3.6 billion. Moreover, a boom in the digital payment and e-commerce spaces owing to the coronavirus pandemic acted as a tailwind.

Further, strong performance by Venmo and merchant services aided the results. Additionally, PayPal Checkout experiences, which witnessed growing transactions, remained a positive.

Guidance

The company expects to continue witnessing an uptrend in the digital payment market for the rest of the year. Additionally, accelerating transaction revenues of PayPal are likely to continue driving revenues. Further, its strong efforts in product enhancements remain as positives.

The deployment of the QR code technology across PayPal and Venmo apps in 28 global markets is expected to deliver a better payment experience.

For third-quarter 2020, PayPal expects revenues to reflect year-over-year improvement of 23% at the current spot rate and 25% at FX-neutral basis. The Zacks Consensus Estimate for revenues is pegged at $5.02 billion.

Non-GAAP earnings, which are anticipated to grow by 25%, are expected to carry the acquisition impact of 4 cents per share. The Zacks Consensus Estimate for earnings is 86 cents per share.

For 2020, PayPal expects revenues to reflect year-over-year improvement of 20% at the current spot rate and 22% at FX-neutral basis. Non-GAAP earnings, which are anticipated to grow by 25%, are expected to carry the acquisition impact of 11 cents per share.

ETFs in Focus

This can be a winning opportunity to enter into some ETFs that are heavy on PayPal.

ETFMG Prime Mobile Payments ETF (IPAY) — 6.91% exposure

The underlying Prime Mobile Payments Index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, specifically focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions. It charges 75 bps in fees.

First Trust US IPO Index Fund (FPX) — 6.69% exposure

The First Trust US Equity Opportunities ETF tracks the price and yield of the IPOX-100 U.S. Index. The IPOX Composite U.S. Index is a rules-based, value-weighted index measuring the average performance of U.S. IPOs during their first 1,000 trading days. It charges 58 bps in fees.

Global X FinTech ETF (FINX) — 6.27% exposure

The underlying Indxx Global FinTech Thematic Index invests in companies on the leading edge of the emerging financial technology sector, which encompasses a range of innovations helping to transform established industries like insurance, investing, fundraising, and third-party lending through unique mobile and digital solutions. The expense ratio is 0.68%.

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