Paypal Holdings Inc Stock Earnings Aren’t Enough for the Market

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PYPL stock - Paypal Holdings Inc Stock Earnings Aren’t Enough for the Market

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PayPal Holdings Inc. (NASDAQ:PYPL) reported excellent earnings on Wednesday, but offered a cautious outlook, and PYPL stock fell 10% after-hours. There’s no good deed that goes unpunished in the stock market these days.

Some of the PYPL metrics are really impressive. For Q4, new actives for PYPL stock rose 16% to 8.7 million new adds. There were 2.2 billion transactions, up 25%. Total payment volume rose a staggering 32% to $131 billion.

For the entire year, active customer accounts are now 227 million, increasing 15%, including 29 million net new active users. This number is incredible.

After all, 227 million is about two-thirds of the U.S. population, and shows the PayPal’s payment platform remains the dominant force in the sector.

Not only that, the number of payment transactions for PYPL rose a whopping 24% to 7.6 billion. So not only are people using PayPal, the average user does so about 33 times annually.

Total payment volume thus rose 27% to $451 billion, meaning the average transaction is incredibly small – only about $6 per transaction.

PYPL management also did something interesting from a liquidity standpoint. It sold its credit card receivables portfolio to Synchrony Financial (NYSE:SYF) of about $6.4 billion. Rather than deal with managing and collecting on these accounts, PYPL just sold it off.

Now, looking at the hard financial number for PYPL stock for Q4, revenue grew 26% to $3.74 billion, up 26%, resulting in an excellent operating margin of 22.5%. Excluding the impact of the receivables sale and other items, EPS grew 30% to $0.55 per share.

For the year, number were equally strong. Revenue rose 21% to $13.09 billion. Operating margin was 21.1%. EPS grew 27% to $1.90 per share.

Normally I hate stock buybacks, but PYPL saw its stock was fairly valued or even undervalued, so it purchased almost 20 million shares at an average price of $51. PYPL stock closed in after hours trade at $76. Nice deal.

Meanwhile, PYPL is increasing being used for person-to-person transfers. P2P volume grew 50% to $27 billion, and is now about a fifth of all revenue.

In case you didn’t know that Venmo was owned by PayPal, now you do, and that platform now handles $10.4 billion in payment volume, up 86% and up a whopping 97% for the year with $35 billion in payment volume.

Paypal stock is backed by its $7.7 billion in cash and investments.

Yet the market got hot and bothered because EPS is pegged at $2.27 for FY18, an increase of “only” 20%.

Okay, so I can see that growth declining from 27% to 20% is a cause for some concern. If Paypal stock is a growth stock, nobody wants to see growth flag.

With the stock now at $75, PYPL stock now trades at 32x FY18 earnings on a 20% EPS growth rate. That is a PEG ratio of 1.6, which is not unreasonable for a growth stock.

Still, the market is telling us that, even in a big bull market like this, growth stocks of certain kinds must deliver. I think the play here is to wait and see. The 50-day moving average is at $77.50. After that, next support is at $63. If PYPL stock continues to fall, then wait before getting in.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/pypl-stock-earnings-enough/.

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