PayPal (NASDAQ:PYPL) slumped 5.09% on more than triple the average daily volume on Thursday, July 25 after the mobile payments and money transfer giant cut its 2019 revenue guidance. But that doesn’t mean everything looks bleak for PayPal stock.
PayPal now expects 2019 revenue of $17.60 billion to $17.80 billion, below a prior top-line forecast of $17.85 billion to $18.1 billion. The company’s latest guidance is also well below the Wall Street estimate of $17.92 billion. For the second quarter, the company earned 86 cents a share on revenue of $4.3 billion. Analysts were expecting earnings of 69 cents a share on revenue of $4.1 billion.
Showing just how much analysts and investors prize top-line growth, PayPal raised its earnings guidance and the stock still faltered. The company boosted non-GAAP earnings guidance for 2019 to $3.12 to $3.17 a share.
As has been the case with a slew of other companies this earnings season, foreign currency issues took a toll on PayPal in the second quarter, but that is not a permanent situation and Thursday’s decline could be the pullback investors have been waiting for in the stock, which is still up nearly 37% year-to-date.
The PayPal Story
PayPal is often viewed as a financial services stock, but that is a value sector and PayPal stock is a growth name. It is rare for value stocks to return 37% in less than seven months and rare still that they trade at 40.65x forward earnings, as PayPal stock does. However, wide moat fintech players like PayPal justify lofty earnings multiples.
Additionally, PayPal is tapping into an array of high-growth markets to foster its own growth. Those included extending the dominance of Venmo, unveiling the PayPal Commerce Platform and more.
“Net new active accounts increased by a record 41 million over the last 12 months, and engagement per active account once again increased by 9% to 39 times a year. Venmo’s momentum continues, with 70% growth in total payment volume to $24 billion,” said PayPal CEO and President Dan Schulman in a statement.
With ecommerce and online retail booming, the PayPal Commerce Platform has the potential to be a long-term contributor to the stock’s value.
PayPal Commerce Platform is “a new solution designed to meet the specific needs of marketplaces, ecommerce solution providers, and crowdfunding platforms by bringing together a comprehensive set of technologies, tools, services, and financing solutions for businesses,” according to the company.
That’s a lot of corporate jargon there. For investors, the best thing to do is to examine the data around the growth of ecommerce and online retail.
“The Census Bureau of the Department of Commerce announced (earlier this year) the estimate of U.S. retail e-commerce sales for the first quarter of 2019, adjusted for seasonal variation, but not for price changes, was $137.7 billion, an increase of 3.6percent (±0.7%) from the fourth quarter of 2018,” said the Census Bureau.
Investors needing more convincing about the potency of e-commerce and how it can affect PayPal stock for the better going forward can simply examine the boffo results from Amazon.com’s (NASDAQ:AMZN) recent Prime Day.
Bottom Line on PayPal Stock
In the second quarter, PayPal also enhanced its partnership with Uber (NYSE:UBER) while taking a $500 million stake in the ride-hailing firm. Then there is the growth opportunity with PayPal’s Xoom business.
“In July, PayPal’s Xoom product launched its international money transfer services in the UK and 31 other European markets,” according to the company. “Customers across Europe can now use Xoom to send money, pay bills or reload phones to more than 130 markets internationally.”
Yes, there were second-quarter issues, but it’s best to take the long view with PayPal stock.
“More importantly, the company lowered its constant currency revenue guidance for the year to 14%-15% from 16-17%,” said Morningstar. “This was primarily attributed to delays in product integrations with some key partners and planned pricing changes. This development does not overly concern us. Despite any near-term operational hiccups, we think the near-term outlook for PayPal remains bright.”
Todd Shriber does not own any of the aforementioned securities.
