It’s been a bumper year so far for online payments processor PayPal Holdings Inc. (NASDAQ:PYPL). PYPL stock is up nearly 50% so far this year, and with the firm’s second-quarter earnings due out on Wednesday after the closing bell, investors can expect to see the share price climb even higher.
PayPal has seen its share price skyrocket over the past few months thanks to new partnership announcements and impressive first-quarter results. And while the company is already trading at all-time highs, I believe the stock hasn’t quite reached its peak.
Here are three reasons why PYPL stock will continue charging upward following its second-quarter earnings release — and higher still in the months to come.
Positive Reaction to Earnings
PayPal is expected to report earnings of 43 cents per share on revenues of $3.09 billion for its second quarter, and there are a few signs that a beat is on the way.
For one, earlier this year, management said it sees revenue making its way to $3.25 billion at the midpoint of 2017, and PayPal looks poised to make good on that promise. Do the math from there — if the assumed margins on higher revenues still apply, that translates into better-than-expected profits.
There’s also a potential update on PayPal’s “asset-light” strategy, which has faced some criticism, but I ultimately believe it would be good for the stock. While selling off its credit business may impact margins negatively, it would also free up a great deal of cash that can be reinvested in the firm’s future through strategic acquisitions.
Not only that, but as long as PYPL can still offer a line of credit to its users it will benefit, even if it isn’t the one collecting the fees and interest. Schulman has said that spending among customers who use PayPal credit is double that of those who don’t.
Moreover, the company’s March 29 fee increases should boost the bottom line.
Partnership Building
Something that likely won’t affect second-quarter results, but could color Q3 and full-year guidance, is the firm’s recent partnerships.
Over the past few months, PayPal has joined forces with several businesses, including with JPMorgan Chase & Co. (NYSE:JPM) to allow JPMorgan cardholders use their loyalty points to make purchases through PayPal. It also expanded its partnership with Visa Inc. (NYSE:V) to take PayPal further afield and into Europe. Then there was a deal with Samsung Electronics’ (OTCMKTS:SSNLF) Samsung Pay that will help PYPL increase its presence in brick-and-mortar stores.
However, the most exciting of PayPal’s partnership agreements is its union with Apple Inc. (NASDAQ:AAPL).
Apple has agreed to offer PayPal as a payment option for its customers — a move that has two immensely positive ramifications for PYPL. The most obvious, of course, is that it exposes PayPal to the Apple ecosystem and the massive customer base that goes along with it. But it also sets a precedent — PayPal is in direct competition with Apple Pay, but AAPL allowed it into the field anyway.
A third potential benefit is that this could nudge e-commerce heavyweight Amazon.com Inc. (NASDAQ:AMZN) into making a similar deal. Such a decision has been discussed for years, with many PayPal users begging for the option. For now, any partnership is merely speculation, however.
Still, PYPL stock holders will want to see if CEO Daniel Schulman discusses these new partnerships in the conference call, and offers any updated numbers based on their potential.
Other Arms
As fellow InvestorPlace contributor Luke Lango put it, “PYPL stock wins so long as e-commerce continues to boom.”
That means there’s a ton of growth potential out there for the payments processor as people start to buy a wider variety of goods online. Even without Amazon, companies that do offer PayPal at checkout, like Wal-Mart Stores (NYSE:WMT) and Target Corporation (NYSE:TGT), are seeing online purchases increase rapidly. And PayPal is doing everything it can to stay at the forefront of online payment processing.
PYPL has rolled out a few new initiatives like One Touch and Venmo, both of which still have untapped potential.
One Touch — an expedited PayPal checkout method — has gained some 53 million users, which while impressive still is only a quarter of PayPal’s 203 million active users. Similarly, Venmo, a P2P payment option, is only being tested as a payment option for select merchants. But its popularity among millennials is encouraging.
Bottom Line on PYPL Stock
There’s a lot to like about PayPal right now, and I expect the firm’s second-quarter results to reiterate that idea.
Wall Street thinks so too. Even after a roughly 50% increase in six months, analysts at BTIG see another 10% or so in upside for PYPL stock. And chances are analyst estimates will head higher alongside any full-year guidance updates after the bell tonight.
Go ahead and chase PayPal. There’s still more ladder to climb.
As of this writing, Laura Hoy was long AMZN and AAPL.
