PayPal’s Q4 Earnings Should Show Why This Payment Giant Continues To Thrive

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  • Reports Wednesday, January 30, after the market close
  • Revenue Expectation: $4.24B
  • EPS: $0.67

Payment processing giant PayPal (NASDAQ:PYPL) is one of the few stocks in the digital space this year that still enjoys our confidence. And this optimism is backed by a solid growth trajectory and some strategic moves that management has taken to separate the company from the rest of the crowd.

Against the widespread fear that PayPal would see a drastic reduction in payment processing volumes after its separation from eBay (NASDAQ:EBAY) in 2015, the platform has found a way to not only thrive, but to also add new ways to increase revenue.

PayPal's Q4 Earnings Should Show Why This Payment Giant Continues To Thrive

PYPL Weekly 2016-2019

PayPal has a market capitalization of almost $107 billion, 100 times what it was worth when it was bought by eBay in 2002. As well, the number of users has grown from 15 million to almost 250 million. Though it’s struggled in China where WeChat dominates payments, in the rest of the world it processes as much as 30% of all e-commerce transactions, according to some estimates.

In its most recent quarter, PayPal reported solid quarterly earnings, with robust 21% growth in sales after adjusting for one-time expenses, and a 17% jump in earnings per share, while raising guidance for the rest of the year.

During its the fourth quarter report, scheduled for the end of January, analysts are expecting $0.67 profit per share, a gain of 22% from the same period a year ago on sales of $4.24 billion.

Smart Acquisitions Power Growth

Over the past few years, as part of its drive to gain a greater share of the highly competitive payment processing industry, PayPal has made a number of smart acquisitions. These moves are now propelling growth and positioning the company to defend its premier position.

In a global economy where shoppers spent almost $3 trillion online last year, PayPal has acquired a variety of tools that enable these transactions. It owns Venmo, the social payments app, and Xoom, a digital money transfer service used to send money abroad.

But this massive market for digital payments is also attracting some of the largest global tech firms, including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Google (NASDAQ:GOOGL). However, instead of undercutting these giants, PayPal has adopted a more conciliatory approach. Rather than compete head on with all newcomers, it’s partnering with some tech companies, trying to move into finance and financial institutions that are finding it tough to make the shift into online financial services on their own.

PayPal stock, which closed yesterday at $91.60, after rising about 14% in the past 12 months and 112% over the past two years, is in a much better position to weather an economic downturn than other competitors. The reason we favor PayPal over other highly cyclical growth stocks is simple: a potential economic slowdown or even a full-blown recession won’t stop consumers from shifting to more convenient ways of handling their financial transactions. And we see PayPal as well positioned to take advantage of this trend.

Bottom Line

We believe PayPal’s Q4 results will show significant growth in total volume due to acquisitions and new partnerships. As such its shares are on track for another strong year.

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