PayPal Holdings, Inc. (NASDAQ:PYPL)is scheduled to report third-quarter 2017 earnings on Oct 19 after the bell. We expect PayPal and PYPL stock to perform well driven by strength in its active customer accounts, transaction and other value-added services revenues.
We observe that shares of PayPal have gained 74% year to date, significantly outperforming the industry’s 25.8% rally.
Core Business, Venmo, One Touch to Boost Active Customer Accounts
In the second quarter, PayPal added 6.5 million new customers, taking the total active customer accounts to 210 million. We expect significant additions in the to-be-reported quarter. The Zacks Consensus Estimate for this metric is currently pegged at 216 million.
Strength in PayPal’s core business and growth of Venmo and One Touch are expected to contribute significantly to the rise in its active customer accounts.
The acquisition of TIO Networks helped PayPal add the bill pay functionality to its two-sided platform, thus boosting its ability to attract and retain more consumers.
Further, the company is working on developing an integrated suite of services, experiences and APIs to strengthen this two-sided ecosystem, which in turn should boost active accounts.
Core PayPal, Braintree, Credit Strength to Drive Revenues
In the second quarter, transaction revenues of $2.75 billion contributed 88% to total revenue and were up 6% sequentially and 18% on a year-over-year basis. This figure is expected to increase in the to-be-reported quarter driven by strength in its core PayPal and Braintree businesses. The Zacks Consensus Estimate for transaction revenues is currently pegged at $2.76 billion.
PayPal Holdings, Inc. Revenue (TTM)
Other value-added services revenues of $387 million contributed 12% and were up 3% sequentially and 18% year over year in the quarter in the second quarter. The Zacks Consensus Estimate for this quarter stands at $417 billion. Growth is expected given PayPal’s improving credit business.
Bottom Line for PayPal Stock
PayPal continues to ride on partnerships and mobile centrism. The company’s ongoing strategic partnership with Visa Inc (NYSE:V) provides enhanced consumer choice, point of sale acceptance, instant money withdrawal facility and data quality. This partnership has been recently expanded to Europe and Asia Pacific.
PayPal and Mastercard have been working together for 10 years. They currently run a multi-year PayPal Extras Mastercard co-branded consumer credit card program. MasterCard is a “clear and equal” payment choice in PayPal’s wallet. Their partnership has been recently expanded to Europe and Asia-Pacific.
The company’s partnerships with Alphabet Inc’s (NASDAQ:GOOGL) Google, Facebook Inc (NASDAQ:FB), Alibaba Group Holding Ltd (NYSE:BABA) and eBay Inc (NASDAQ:EBAY) are also delivering positive results. Over the past one year, the company has put itself in a favorable place for partnerships across multiple original equipment manufacturers (OEM), technology companies, mobile-carriers, retailers and financial institutions.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.
PayPal has a Zacks Rank #1 and an Earnings ESP of +0.08% and that indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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