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What's in the Offing for PayPal's (PYPL) Earnings in Q1?

Zacks Equity Research

PayPal Holdings, Inc. PYPL is set to report first-quarter 2019 results on Apr 24.

The company surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 4.88%.

In fourth-quarter 2018, the company’s reported earnings of 69 cents per share, recording a positive earnings surprise of 2.99%. The figure also surged 25.5% on a year-over-year basis.

Net revenues improved 14% year over year to $4.228 billion but missed the Zacks Consensus Estimate of $4.238 billion.

PayPal’s strategy of geographic and product diversification, and benefits from acquisitions aided the top line. Further, its Venmo monetization efforts and strength in APAC business contributed well.

For first-quarter 2019, PayPal expects revenues between $4.08 billion and $4.13 billion. Non-GAAP earnings are anticipated to lie within the range of 66-68 cents per diluted share.

Let’s analyze the factors likely to influence the first-quarter results.

PayPal Holdings, Inc. Price and EPS Surprise


PayPal Holdings, Inc. Price and EPS Surprise | PayPal Holdings, Inc. Quote

Portfolio Strength to Aid Growth

PayPal’s robust product portfolio is expected to aid business growth in the to-be-reported quarter as well.

Venmo’s improving monetization efforts are aiding the company in attracting new partners to its platform. This is likely to bolster its monthly active user base which in turn is expected to aid payment volume growth in the to-be-reported quarter. Moreover, Venmo card is likely to impact the company’s instant transfer revenues in the quarter under review.

Furthermore, PayPal’s growing mobile initiatives are strengthening customer engagement on its platform. Moreover, One Touch with its strong checkout conversion rates continues to aid its momentum among merchants and consumers.

Additionally, the acquisition of Braintree remains a major positive. Positive contributions from this buyout are anticipated to accelerate the company’s transaction number in the to-be-reported quarter.

We believe all these products are anticipated to bolster PayPal’s active customer accounts and total payment volume (TPV) which forms the basis of the company’s business in the to-be-reported quarter.

Upswing in the Metrics

Active customer accounts and TPV are considered to be the key metrics for analyzing the company’s business growth.

For the first quarter, the Zacks Consensus Estimate for active customer accounts is pegged at 274 million, up 15.6% from the year-ago quarter. Further, the consensus estimate for TPV is projected at $162.9 billion, suggesting an improvement of 23.1% from the year-ago reported quarter.

PayPal is currently riding on strong momentum in international markets, especially in India and Japan. Further, its expanding marketplace relationships, strategic partnerships with global financial institutions and strengthening merchant base are tailwinds.

All these factors have led to an upswing in the above-mentioned metrics.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

PayPal currently has a Zacks Rank #2 and an Earnings ESP of +1.06%. This indicates that the company is likely to deliver positive earnings surprise.

Other Stocks That Warrant a Look

Here are some other stocks worth considering as our model shows that these too have the right combination of elements to deliver an earnings beat in the upcoming releases.

Amazon.com, Inc. AMZN has an Earnings ESP of +10.65% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. SQ has an Earnings ESP of +5.5% and a Zacks Rank #2.

Acacia Communications, Inc. ACIA has an Earnings ESP of +5.73% and a Zacks Rank #2.

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