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Is PayPal’s share price set to rally on India expansion?

PayPal’s [PYPL] CTO Sri Shivananda revealed in mid-August, that the company is looking to significantly expand its operations in India – a move the company sees as “critically important”.

To do so, PayPal – which began allowing merchants to process local and global payments in India in November 2017 – is looking to develop ‘one-click’ payment technology to reduce purchase barriers rife in the territory. The company is also increasing employee headcount in the region, and is actively scouting for acquisitions. 

PayPal’s shares have gained 4.25% since the announcement on 14 August. This is particularly significant as disappointing Q2 results, reported on 24 July, had caused shares to plummet by near 15% up until Shivananda’s interview with the Financial Times, which outlined the extent of the plans, was published. The share growth suggests that PayPal’s renewed focus is stirring excitement among traders.

 

What happened in Q2?

PayPal missed Wall Street’s revenue estimates for the quarter in July, which immediately pushed shares downwards. The company’s revenue rose to $4.31bn, up 12% on the year, but was still below consensus expectations of $4.33bn. 

The company also lowered its full-year revenue guidance due to currency pressures, delays in product integration, and pricing initiatives set for implementation at a later date. Its full year revenue is now expected to arrive at between $17.6bn and $17.8bn, below the $17.92bn initially expected by analysts.

 

Can Indian investment secure a brighter outlook?

PayPal’s growth is becoming increasingly dependent on international revenue. It raised 47% of its revenue from international territories last year compared to 53% from the US market. Sales from international markets grew by 18% year-on-year.

18%

YoY international markets growth

This growth, combined with the fact that India’s digital payment market is set to grow from $200bn to $1tn by 2023, as per Credit Suisse’s estimates, suggests that movement in this space development in this space should strengthen the company’s top line moving forward, and will undoubtedly generate buzz among traders.

 

A strong performer

Despite its Q2 hiccup, PayPal’s stock has been one of the strongest performers in 2019, having gained 26% up to 28 August. The stock is outperforming the S&P 500, which has gained by 13.4% in the same period.

Analysts maintain a ‘buy’ rating on the stock and an average price target of $126, according to Market Realist.

 

Market cap £126.26bn
PE ratio (TTM) 54.14
EPS (TTM) 2.10
Operating Margin (TTM) 14.58%

PayPal share price vitals, Yahoo finance, 28 August 2019

 

Jeff Caldwell, a Guggenhaim Partners analyst, says the pullback after PayPal’s Q2 results simply presented the opportunity to buy PYPL shares at a discount price. He recently upgraded the stock to ‘neutral’ from ‘sell’.

The company sports a Zacks Rank of ‘buy’. Within the past quarter, the Zacks Consensus Estimate for its full-year earnings has moved 7.70% higher, which means that analyst sentiment is increasingly positive, sentiment bolstered by the stock's earnings outlook – quarterly earnings growth stands at 56.50% year-over-year - which is improving after a tricky summer.

Forbes suggests PayPal is a key stock to buy early this September. “This stock has exhibited superior relative strength in 2019. The share price is likely to rise closer to the $115 area,” it said in a recent report; the $115 level would represent an 8% upside on the current share price.

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