With electronic payments increasing as a result of store closures, could PayPal [PYPL] be set for an earnings beat and share price boost?
Could COVID-19 spell the end of cash? Over the last few weeks, many have been discussing how the pandemic could permanently change the electronic payment and e-commerce landscape, with PayPal saying it has experienced “a tremendous increase in the use of digital payments,” according to CEO Dan Schulman (pictured). A boon then for those invested, or trading, PayPal’s share price?
There’s some agreement among analysts that PayPal is a strong position to benefit from the current situation, and its share price too. Research firm MoffettNathanson’s Lisa Ellis believes that the resulting shifts in merchant and consumer behaviour “offer PayPal a unique opportunity to gain market share on every facet of its business”.
Ellis did, however, cede that the impact of coronavirus may linger. She lowered her forecast for revenue and earnings in 2022 by 10% and 12% respectively, according to Investor's Business Daily. Since the start of March, a number of analysts have lowered their share price target for the stock, including those at Nomura, Wedbush, Morgan Stanley and Wells Fargo.
With PayPal’s Q1 earnings report due on 6 May, how is the company expected to have performed in the first quarter of the new fiscal year? And will that performance result in a post-earnings share price bounce, or dive?
Will PayPal beat Q1 earnings estimates?
At a time when some of the big names in computing and technology have been revising down quarterly guidance or withdrawing it altogether, PayPal has reiterated its guidance for the first quarter. However, the company did warn back in February that revenue would be nearer the lower end of the originally announced range of between $4.78bn and $4.84bn.
PayPal's estimated Q1 revenue
“We currently estimate the negative impact from Covid-19 to be an approximate one percentage point reduction, on both a spot and foreign currency-neutral basis, to PayPal’s year-over-year revenue growth for the first quarter, as compared to revenue guidance provided [on 29 January],” Paypal said in a press release recently.
Nonetheless, if PayPal can achieve the lower end of this estimated range, it would still mark a nearly 16% year-over-year increase on the Q1 2019’s revenue of $4.13bn.
Revenue for the fourth quarter was $4.96bn, surpassing consensus estimates of $4.94bn. Earnings per share, meanwhile, were $0.86, topping the consensus estimates of $0.83. PayPal predicts EPS for Q1 will be between $0.76 and $0.78, while analysts currently have an average forecast of $0.75 — on 29 April, Zacks reported that the consensus estimate had been revised down by 3.56% over the prior 30 days.
“We currently estimate the negative impact from Covid-19 to be an approximate one percentage point reduction, on both a spot and foreign currency-neutral basis, to PayPal’s year-over-year revenue growth for the first quarter, as compared to revenue guidance provided [on 29 January]” - press release from PayPal
According to historical EPS data, accessed via Zacks, PayPal has posted an EPS beat every quarter since the beginning of 2018.
Providing support to small business
Despite the anticipated impact Covid-19 might have on the three months to 31 March, any ongoing impact from the pandemic could be softened by steps the company has already taken.
On 10 April, it announced that it had been approved to offer small businesses Paycheck Protection Program (PPP) loans, making it one of the first non-banking institutions to provide such access to government financial support. The company has also decided to waive some fees for merchants.
|PE ratio (TTM)||60.75|
|Quarterly Revenue Growth (YoY)||17.40%|
PayPal share price vitals, Yahoo Finance, 5 May 2020
Following the announcement, Paypal’s stock popped. Between 9 and 22 April the share price rose 8.8%, rising from $105.84 to $115.19. As of 4 May, the share price is trading just below its all-time closing high of $123.66, according to YCharts data.
In general, analysts are optimistic about PayPal’s long-term prospects, even if it were to miss first-quarter estimates. According to MarketBeat, of the 30 analysts that have recently issued ratings for PayPal, 27 gave it a buy rating while the remaining three assigned a hold rating. The consensus price target is $127.48.