Earnings Outlook: PayPal earnings: Expect ‘more catalyst potential than usual’

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PayPal Holdings Inc. has “more catalyst potential than usual” heading into its Wednesday afternoon earnings report as the company gets closer to its eBay contract transition, updates investors on delayed partner implementations that led to a lowered outlook three months back, and potentially provides an early view of its 2020 expectations.

That’s according to Barclays analyst Ramsey El-Assal, who expects that the company was able to reap the benefits of a “still-robust” global spending environment last quarter.

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PayPal’s PYPL, +0.22%  third-quarter call should also provide a look at how management thinks the holiday season will play out. Here’s what to expect from the company’s report.

What to expect

Earnings: Analysts surveyed by FactSet expect PayPal to post 52 cents in adjusted earnings per share for the third quarter, compared with 58 cents a year earlier. The company disclosed in a filing earlier this month that it expected a negative-15-cent impact to adjusted earnings stemming from unrealized losses on strategic investments. In conjunction with its last earnings report in July, management had projected a roughly 3-cent benefit from adjusted gains.

Revenue: The FactSet consensus calls for $4.35 billion in third-quarter revenue, up from $3.68 billion a year ago. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate is for $4.36 billion.

Stock movement: PayPal shares have risen following six of the company’s past 10 earnings reports. The stock has climbed 21% so far this year, outpacing a 20% gain for the S&P 500 SPX, +0.69%  over that time. Of the 42 analysts tracked by FactSet who cover PayPal’s stock, 33 rate it a buy, eight call it a hold, and one has a sell rating. The average target price listed is $127.05, 25% above recent levels.

What else to watch for

El-Assal of Barclays expects PayPal to give an initial 2020 outlook this quarter, which he expects to fall “toward the low end of their medium-term guidance range provided at PayPal’s [May 2018] investor day (17%-18%).” He said there’s “more uncertainty than usual” heading into the quarter since investors will be looking for some indication that PayPal will be able to capture the delayed revenue it talked about on its last call. In addition, there are numerous potential outcomes related to eBay’s changing relationship with PayPal, and the digital-payments giant will need to give a forecast that leaves room for various timing scenarios.

He rates the stock at overweight with a $127 target price.

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Susquehanna analyst Jamie Friedman highlighted a new policy change around returns that affects certain types of merchants on a standard pricing plan.

“Per a recent PayPal policy update, most sellers operating under the general PayPal agreement (i.e., paying the 2.9% +$0.30 transaction fee) forfeit the return of the transaction processing costs back to PayPal upon the return of a purchase,” he wrote. Susquehanna “calculates that this new policy — which we believe better harmonizes with industry practice — could generate increased revenues of $300+ million annually.”

Friedman has a positive rating and $120 price target on the stock.

Another key theme will be PayPal’s ongoing efforts to monetize its Venmo service. Most recently, the company announced a Venmo credit card that’s expected out in the second half of 2020. Keefe, Bruyette, and Woods analyst Sanjay Sakhrani expects that the card could add $70 million to $100 million of annualized revenue for PayPal after the launch, though the company has yet to give concrete details on the features that will be part of this new card.

More immediately, PayPal may give updates on how current Venmo monetization efforts are playing out. These include a Venmo debit card, the Pay with Venmo option at online merchants, and the ability to instantly transfer funds to a bank account. The company said in conjunction with its last earnings call that about 15 million Venmo users had engaged in a monetizable experience as of then.