PayPal: Will Q3 Earnings Show It’s Recovering From The eBay Split?

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  • Reports Thursday, October 18, after the market close
  • Revenue Expectation: $3.66B
  • EPS: $0.54

After surging more than 80% last year, shares of online payment giant PayPal Holdings (NASDAQ:PYPL) have done little to impress investors lately. Trading at $80 as of yesterday’s close, the stock was down 15% from the 52-week high of almost $94.

After this dismal performance, PayPal lovers are left wondering whether this is just a blip or a sign of the stock having peaked. The company’s third quarter earnings, scheduled for release today, Thursday October 18, after the market closes, may provide some clues.

PayPal: Will Q3 Earnings Show It's Recovering From The eBay Split?

5-Hour PayPal Chart: August-October 2018

PayPal stock lost its luster earlier this year when eBay (NASDAQ:EBAY) announced that it planed to take over crucial payments-processing duties for its core Marketplace e-commerce offering, a role that PayPal had handled for the e-commerce site under a deal signed when the two companies split in 2015. EBAY expects to fully transition to the new system by 2021 with the help of its new payments partner, Adyen.

As eBay has played a crucial role in PayPal’s growth, accounting for roughly 13% of total payments processed by the company, this shocking announcement sent PayPal shares tumbling from their remarkable rally.

PayPal management insists that this loss is manageable, as it believes the company is on the right track to expand its offerings. To offset the loss, the company is mainly focusing on the promotion of Venmo, a payment app that has been very popular with smartphone users, as well as on acquisitions.

When PayPal releases third quarter results later today, investors will look for solid evidence that the company has succeeded in monetizing Venmo—a feat PayPal has been unable to accomplish until now. Just last week, PayPal said it will charge 1% when Venmo account holders transfer money quickly to their bank accounts, raising the charge from $0.25 per transaction.

An aggressive acquisition drive is another part of PayPal’s strategy to diversify its payment processing business in order to become less dependent on eBay’s business. As part of this push, the company has bought several companies, including Swedish small-business payments service iZettle for $2.2 billion.

Analysts surveyed by FactSet expect PayPal to report adjusted earnings per share of $0.54 for the last quarter, up from $0.46 a year earlier, on the sales of $3.66 billion.

If PayPal can indeed show significant growth in total volume due to acquisitions and new partnerships, we believe its shares will break out of their bearish slump. Such an outcome would be important in order to quell investor fears about the company’s growth potential over the next three years, after the divorce from eBay.

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