Thursday, May 7, 2020

Investors Bullish About PayPal, Despite Q1 Miss

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What’s happening: Shares of PayPal Holdings surged in after-hours trading on Wednesday despite the digital payments pioneer falling short of expectations for the first quarter.

What happened: The coronavirus outbreak impacted PayPal’s business in March, causing a meaningful hit to first-quarter results.

The San Jose, California-based company’s profits, revenues and payment volumes all missed the consensus estimates and management issued a dismal outlook for the current quarter. PayPal said it expects revenue growth of 13%, below the 15% growth being projected by Wall Street analysts. Despite the disappointing results and guidance, PayPal’s stock spiked in extended trading on Wednesday.

How were the results: PayPal reported a decline in earnings for the latest quarter due to a rise in credit loss reserves.

  • Net income declined to $84 million, or 7 cents per share, versus $667 million, or 56 per share in the same quarter last year.
  • Revenues climbed to $4.62 billion, from $4.13 billion in the year-ago quarter, but missed the consensus estimate of $4.74 billion.
  • Adjusted earnings came in at 66 cents per share, below the expectations of 75 cents per share.

Why it matters: PayPal processed payments of $191 billion in the first quarter, representing 18% growth, but missed the consensus view of $194.23 billion.

PayPal joined several companies to withdraw its guidance for the full year, citing the lack of near-term visibility due to the COVID-19 outbreak.

However, management projected upbeat trends for the upcoming quarter, with online retailers witnessing a sharp increase in demand, resulting in higher online payments. The company also recorded the highest volume of transactions in its history on May 1, surpassing last year’s record on Black Friday and Cyber Monday.

The digital payment processor announced the addition of a record 7.4 million net new accounts for April and its revenues jumped around 20% in the month.

PayPal is also benefitting from its recent acquisition of online deal-discovery firm Honey for $4 billion. Honey’s net new active accounts grew by a whopping 180% last month from the pre-coronavirus levels. PayPal added 10.2 million accounts from Honey in the quarter.

How the shares responded: Shares of PayPal rose 2.3% during the regular session on Wednesday, only to spike again by 8.5% in after-hours trading, following the release of quarterly results. PayPal’s stock has been immune to the recent decline in the stock market, with shares rising more than 26% last month and by around 19% year to date.

What to watch: With people preferring to shop online during the current crisis, PayPal is expected to see strong growth in its overall business. Investors expect this trend to continue even when various nations ease lockdown restrictions. The market expects the company to continue its growth momentum in the near term.

The Markets Today

     

US stocks will be in focus today, ahead of the jobless claims report scheduled for release later in the day.

Context: US stocks closed mixed on Wednesday, as investors digested a report showing a steep decline in employment in the private sector. Investors also assessed some earnings reports from major companies.

Details: Stocks closed mostly lower at the end of the session, with only Nasdaq 100 managing to post gains. The tech index rose 0.5% to close trading at 8,854.39 on Wednesday and is down by just 1.3% year-to-date.

After posting marginal gains earlier in the session, the Dow finished lower, ending the session down 218 points at 23,664.64. The S&P 500 fell 0.7% to settle at 2,848.42.

Economic data continued to increase investor concerns around the country’s unemployment levels. The Automatic Data Processing report indicated that private sector companies had shed more than 20 million jobs last month.

Meanwhile, Walt Disney reported a decline of more than 90% in its profits for the second quarter due to the negative impact of the pandemic on its business. Shares of General Motors gained 3% after the company reporting better-than-expected first-quarter results. Shopify’s stock climbed around 7% after the e-commerce company reported an unexpected profit for its latest quarter.

What to watch: Coronavirus continues to remain the focus for investors, with the total number of cases exceeding 3,755,370 globally. The number of positive COVID-19 cases in the US has surpassed 1,228,600 with around 73,430 deaths.

US stocks are expected to open on a positive note today, with the US stock futures trading higher during the European session. Markets also await a basket of economic reports from the US, including Challenger job cuts, nonfarm unit labor cost, productivity and initial jobless claims. About 3 million Americans are projected to have filed jobless claims in the week ended May 2, versus claims of 3.839 million in the prior week. Unit labour costs, which rose an annualised 0.9% in the fourth quarter, are expected to increase 4% in the first quarter. Nonfarm labour productivity is projected to fall by an annualised 5.5% in the first quarter.

Other Markets: European indices were trading higher at 9:00 am GMT, with the FTSE 100, German 30 and French 40 up by 0.4%, 0.7% and 0.6%, respectively.

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What else to watch today

     

Mexico’s consumer confidence and inflation rate, Russia’s inflation rate and foreign exchange reserves, Brazil’s car production and new vehicle registrations, Canada’s business confidence as well as the US natural gas stocks change and consumer credit change.