PayPal (PYPL) Gains After Topping Q1 and Guidance Expectations, Crypto Seen as a Key Growth Driver Going Forward

May 6, 2021 7:12 AM EDT
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Price: $283.38 +1.89%

Rating Summary:
    46 Buy, 7 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 15 | Down: 13 | New: 24
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PayPal (NASDAQ: PYPL) is up 4.2% in pre-open trading Thursday after the company posted strong growth as more and more people shift to digital payments.

PayPal posted earnings per share (EPS) of $1.22 to top the $1.01 expected from analysts. Revenue was reported at $60.3 billion, which compares to Street’s views of $5.90 billion.

“Our strong first quarter results demonstrate sustained momentum in our business as the world shifts into the digital economy. Our addressable market continues to grow as we launch new products and services for our 392 million active accounts,” Dan Schulman, President and Chief Executive Officer of the company, said.

The company also topped market views for the total payment volume (TPV), which soared 50% to reach $285 billion, vs $265 billion views. Higher TPV came after the company added 14.5 million net new active accounts to now serve a total user base of 392 million.

“Our record-breaking first quarter results underscore the ongoing strength, diversification, and relevance of our scaled, two-sided, global payments platform. We are raising our FY’21 guidance based on these strong results,” commented John Rainey, Chief Financial Officer and Executive Vice President of Global Customer Operation.

PayPal also topped estimates for Q2 and full-year guidance. For the former, PYPL is project EPS of $1.12 per share and revenues of $6.25 billion, higher than $1.10 and $6.16 billion the Street analysts were calling for.

On a full-year basis, PayPal is looking to garner $25.75 billion in sales vs $25.71 billion expected. Earnings per share are projected at $4.70, which is again better than the $4.57 expected.

CEO Schulman also outlined cryptocurrency transactions as a key growth driver for his company.

“We’ve got a tremendous amount of really great results going on tactically with our crypto efforts,” said Schulman.

RBC analyst Daniel Perlin says PYPL delivered a “very impressive quarter” despite the bar set very high. The analyst raised his price target on the Outperform-rated PYPL to $300.00 per share from $292.00.

“Incorporating results and updated guidance, we are increasing our FY21 and FY22 adjusted EPS to $4.73 and $5.80 from $4.55 and $5.50, respectively. With the increase in estimates we are also increasing our price target to $300 from $292, which is 52x our FY22 adj. EPS of $5.80 and in line with high growth peers. Although we expect revenue growth to decelerate as we progressthrough the year, given difficult comparisons, we believe the combination of NNA growth coupled with increased engagement should drive durable long-term profitable growth into FY22 and beyond,” the analyst wrote in a note sent to clients.

Morgan Stanley analyst James Faucette is more bullish than Perlin as his new price target is set at $337.00 per share from $329.00.

“PayPal's stronger-than-expected top-line performance highlights the value proposition that its solutions have for consumers and merchants. Mar qtr results and commentary for June should alleviate concerns related to tougher comps, as the company is clearly benefitting from persisting secular tailwinds and strong consumer spend. At the same time, as evidenced by our quarterly Acceptance Tracker, we think that any concerns that other digital wallets are meaningfully closing the merchant acceptance gap sufficiently to slow PayPal’s growth are likely overblown for now,” Faucette writes in a memo sent to clients.

“We also were encouraged that this qtr's lower transaction expense level features elements that could result in a permanently lower cost base for the company, particularly as increased contribution from bill payments, more on-platform fund retention,etc. Would seem to be durable. Finally, we think long-term shareholders should be pleased that PayPal is levering upside into additional investment.”

Finally, Faucette believes it is “a strategic imperative” for the company to continue extending scale benefits and use any extra cash from incremental operating efficiencies to improve/expand its tech stack, market branding,and product portfolio, instead of pushing upside to the bottom line.

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