The analysts that cover Paypal Holdings Inc (NASDAQ:PYPL) were pretty much spot-on for the third quarter, and traders reacted as such in the after hours. But investors came around Friday morning, however, pushing PayPal stock up about 8%.
PayPal’s earnings came to 35 cents, which was no different from the consensus estimate. But the company did have a slight beat on the top line, which saw an 18% increase in revenues to $2.67 billion. Analysts were forecasting $2.65 billion.
PayPal Earnings Highlights
What’s more, here are some of the highlights from the PayPal earnings report:
- The number of active customer accounts increased by 11% to 192 million.
- The transaction volume jumped by 24% to 1.5 billion.
- PYPL announced major agreements with Visa Inc (NYSE:V), Mastercard Inc (NYSE:MA) and Alibaba Group Holding Ltd (NYSE:BABA).
All in all, PYPL continues to benefit from the megatrend towards mobile payments. And this is not just from the core service but also other properties. For example, Venmo posted a torrid 131% increase in transaction volume to $4.9 billion during the last quarter. The mobile app has become a must-have for the millennial generation.
Then there is Xoom, which allows for international remittances, that has continued to be a nice a source of growth. Oh, and Braintree is another powerful business. The service allows companies to accept payments — and includes marquee customers like Uber, Airbnb and Pinterest.
So while all this is good news for PayPal stock, there are still concerns. Let’s face it, the company must battle against some of the world’s toughest tech operators like Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple Inc. (NASDAQ:AAPL). But even traditional financial institutions, such as Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM), are ramping up their mobile efforts. These firms have major advantages like large customer bases as well as the ability to cross-sell other services and offerings.
Although, for investors in PYPL, perhaps the biggest concern is with the recent deals with V and MA. The perception is that the terms may have been too onerous – which could mean a drag on margins.
According to the PayPal earnings report, however, the fears may actually be overblown. Keep in mind that the company has maintained its three-year forecast. So perhaps PYPL may ultimately realize higher discounts because of the increase in volumes that should come from processing V and MA transactions, especially with brick-and-mortar businesses.
Bottom Line on PYPL Stock
In terms of the valuation on PYPL stock, it is reasonable as well, with the forward price-to-earnings ratio at about 23. This actually compares to 25-to-26 for V and MA — which are growing at a much lower pace!
In other words, for investors looking for a play on mobile payments, PYPL stock certainly looks attractive right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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