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A month has gone by since the last earnings report for Paypal (PYPL). Shares have lost about 11.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paypal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
PayPal's Q4 Earnings & Revenues Surpass Estimates
PayPal Holdings reported non-GAAP earnings of $1.08 per share in fourth-quarter 2020, which surpassed the Zacks Consensus Estimate by 8%. Further, the figure improved 29% on a year-over-year basisand 0.9% sequentially.
Net revenues of $6.12billion outpaced the Zacks Consensus Estimate of $6.06 billion. The figure improved 23% from the year-ago quarter on both reported and FX-neutral basis. Further, it increased 12% from the prior quarter.
Top-line growth was driven by 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 and the e-commerce space, owing to the coronavirus pandemic, remained a major tailwind.
Top Line in Detail
By Type: Transaction revenues amounted to $5.7 billion (93% of net revenues), up 25% from the year-ago quarter.Other value-added services generated revenues of $434 million (accounting for 7% of net revenues), up 2% year over year.
By Geography: Revenues from the United States totaled $3.1 billion (50.2% of net revenues), up 18% on a year-over-year basis. International revenues were $3.04 billion (49.8% of revenues), up 29% from the prior-year quarter.
Key Metrics to Consider
PayPal witnessed year-over-year growth of 24% in total active accounts with the addition of 16 million net new active accounts during the reported quarter. The total number of active accounts was 377 million in the quarter under review.
Additionally, the total number of payment transactions came in at 4.42 billion, up 27% on a year-over-year basis.
Further, the company’s payment transactions per active account were 40.9 million, which improved 1% from the year-ago quarter.
TPV amounted to $277.1 billion for the reported quarter, reflecting year-over-year growth of 39% and 36%on spot rate and currency-neutral basis, respectively.
Notably, year-over-year growth in TPV was primarily driven by robust Venmo, which accounted for $47 billion of TPV, surging 60% 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 42% year over year.
PayPal’s operating expenses were $5.2 billion in the fourth quarter, up 23.8% from the prior-year quarter. As a percentage of net revenues, the figure expanded 30 basis points (bps) year over year to 84.2%.
Further, non-GAAP operating margin came in at 25%, expanding 100 bps from the year-ago quarter.
Balance Sheet & Cash Flow
As of Dec 31, 2020, cash equivalents and investments were $13.1 billion, down from $14.2 billion on Sep 30, 2020.
PayPal had a long-term debt balance of $8.939 billion at the end of the fourth quarter compared with $8.937 billion at the end of the third quarter.
The company generated $1.3 billion of cash from operations, up from $720 million in the previous quarter.
Free cash flow came in at $1.1 billion during the reported quarter compared with $479 million in the prior quarter.
Further, the company returned $265 million to shareholders by repurchasing 1.3 million shares.
For first-quarter 2021, PayPal expects revenues to reflect a year-over-year improvement of 28% at the current spot rate and 26% on a FX-neutral basis.
Non-GAAP earnings are anticipated to grow 50% year over year.
For 2021, PayPal projects revenues at $25.5 billion, which is likely to grow by 19% at a current spot rate and 17% at a FX-neutral basis.
Non-GAAP earnings for 2021 are anticipated to grow 17% year over year.
Additionally, TPV for 2020 is likely to exhibit growth rate in high-20s.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
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 F. 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.