How will Q4 earnings impact the PayPal share price?

Digital payments group PayPal [PYPL], is expected to report a 12.4% hike in year-over-year revenues and a 3.7% climb in earnings when it releases its fourth-quarter results on 1 February.

Analysts at Zacks forecast that it will report revenues of $6.88bn and earnings per share of $1.12.

The PayPal share price is expected to climb after the results, buoyed by continued demand for ecommerce and a rise in transactions over the busy holiday season.

The popularity of PayPal’s buy now, pay later (BNPL) option is also likely to have helped. Some 750,000 BNPL transactions were processed on Black Friday alone, up 400% year-over-year. BNPL adoption is keenly watched by investors and could lift PayPal’s stock price.

Chief executive Dan Schulman (pictured above) told CNBC PayPal processed more than $1bn in volume from BNPL in November and attracted more than 1 million first-time monthly users. This puts the programme at “well over 10 million customers”, Schulman said.

PayPal shares continue to drop

Over the past 12 months, however, the PayPal share price has fallen 28.9% to close at $163.52 on 28 January.

Investor confidence was hurt following online marketplace eBay’s decision to start paying its sellers directly rather than through PayPal.

Further hitting PayPal stocks were rumours it was looking to acquire social media group Pinterest for a potential $45bn. The rationale was to develop a social commerce offering to its core tech payment product, but investors were not impressed. The sold Paypal shares before the supposed deal fizzled out.

Paypal’s share price was dragged when investors awakened to the company’s high valuation of $190bn. As a growth stock, PayPal is not suited to a high inflationary and potentially high interest rate environment.

Looking ahead, there are concerns that PayPal is facing strong competition on the cryptocurrency side from Block [SQ] – formerly Square – as well as fears that the number of ecommerce transactions will fall as pandemic restrictions begin to lift.

Peer Google Pay owner Alphabet [GOOGL] has seen its share price climb 46.6% in the past 12 months, but Square’s share price was down 45.5% over the same period.

PayPal stock has a 5.69% weighting in the ETFMG Prime Mobile Payments ETF [IPAY] on close of 29 January, whose share price has dropped 15.9% over the past 12 months.

PayPal’s Q3 revenue missed expectations

In its third quarter PayPal reported a 13% growth in revenues to $6.18bn, but this still fell short of the forecast $6.23bn. Its earnings per share of $1.11, however, beat estimates of $1.07. Total payment volumes grew 26% to $310bn and it added 13.3 million net new active accounts to 416 million.

John Rainey, PayPal’s CFO and EVP of global customer operations, said that the third-quarter performance “demonstrates the strength of our diversified platform, our global reach, and the scalability of our business.”

Rainey added that the rise of ecommerce and cashless payments have helped the company to advance its leadership position.

However, PayPal’s stock price dropped 10% following the announcement after it forecasted gloomy forward earnings.

For the fourth quarter the company expected earnings per share of $1.12 and revenues of between $6.85bn and $6.95bn. Analysts surveyed by Refinitiv were more optimistic, forecasting earnings per share of $1.27 and revenues of $7.24bn.

Wall Street expectations for upcoming earnings

According to CNN, analysts expect PayPal to post earnings per share of $1.12 and revenues of $6.9bn.

Analysts at Zacks believe PayPal — helped by the continued shift towards contactless payments — will post accelerated payment volumes and record a 12.7% climb in net new active accounts.

“The increasing number of cryptocurrency transactions on the company’s platform on the back of its strengthening services is also expected to have contributed well,” it said.

However, analysts at Exane BNP Paribas were not so confident, stating that its earnings estimates for PayPal in both 2022 and 2023 fall between 7% and 8% below consensus targets for the stock. It cut its rating from ‘outperform’ to ‘neutral’.

Jefferies also recently downgraded the PayPal stock to ‘hold’ as it expects a reversal in consumer spending behaviour as the pandemic eases.