Paypal (NASDAQ:PYPL) is a screaming buy after its recent earnings fiasco. PYPL stock fell 12% on Nov. 9 immediately after it announced third-quarter results and forward guidance that left Wall Street cringing.
Paypal stock had its worst one-day performance in nearly two years due to the substandard results. The online payments company’s shares have now fallen 20% in the past month, bringing their year-to-date decline to nearly 14%.
But at $204.64 and slumping further, PYPL stock looks like a great bargain for investors who are patient and willing to hold the shares for the long-term. And despite the latest earnings miss, there are still reasons to be bullish on Paypal and its prospects.
Weak Guidance for PYPL Stock
On the surface, Paypal’s Q3 report looked decent. The Silicon Valley-based company’s revenue rose 13% from a year ago to nearly $6.2 billion, driven by a 26% rise in total payment volume to $310 billion.
Paypal added 13.3 million net new active accounts during the quarter, bringing its total account base to 416 million worldwide. And the company’s free cash flow climbed 20% to $1.3 billion, which enabled it to undertake its $350 million share buyback program.
The company’s earnings for the quarter ended Sept. 30 came in at $1.11 per share, up almost 4% from a year earlier. Analysts had expected Paypal to see earnings per share (EPS) of $1.07 on revenue of $6.23 billion.
While the earnings results were good, investors seized on Paypal’s weak forward guidance, which sent the stock sharply lower in recent days. Management said on an earnings call that they now expect adjusted earnings of $1.12 per share on revenue of $6.85 billion to $6.95 billion for the fourth quarter.
Analysts had expected $1.27 EPS on $7.24 billion in revenue. In the latter category, Paypal’s guidance for the entire year was revised down to a range of $25.3 billion to $25.4 billion. Analysts had been looking for $25.78 billion in full-year revenue. The disappointing guidance was like a torpedo hitting PYPL stock.
Paypal Can Get a Boost from Amazon and Crypto
When delivering its Q3 results, PayPal also announced a new deal with online retail giant Amazon (NASDAQ:AMZN). Beginning next year, Paypal users will be able to make purchases on Amazon’s website and mobile shopping app using their Venmo accounts.
The deal was struck as eBay (NASDAQ:EBAY), which used to own Paypal, transitions sellers from the fintech company onto its own proprietary payment system. PayPal said volume on eBay marketplaces now represents just 4% of its total revenue. Partnering with Amazon should help Paypal replace some of the revenue it lost through eBay.
Paypal’s Venmo app continues to be a big focus for the company. In April of this year, the payments platform began supporting cryptocurrency. Payment volumes from digital coins and tokens rose 36% to $60 billion in the third quarter.
Customers of Paypal in the U.S. can buy, sell and check out using a variety of cryptos on Venmo. And with a network of 33 million retailers globally, PayPal’s offerings rival those of Coinbase (NASDAQ:COIN), the country’s largest cryptocurrency exchange.
Paypal benefited from the surge in popularity of both online payments and cryptos during the pandemic. Its shares more than doubled in value in 2020.
But PYPL stock has been on the downslope since rumors surfaced that the company was planning to buy Pinterest (NYSE:PINS) for $45 billion. Analysts praised the potential deal, saying it would give Paypal an engine for future growth.
However, Paypal squashed the rumors, saying it is not involved in talks to acquire Pinterest. Since then, its shares have been trending lower in a decline that recently accelerated.
Buy (And Hold) PYPL Stock
The fundamental story of Paypal has not changed. While the company is forecasting a weaker-than-expected fourth quarter, the long-term outlook remains incredibly positive.
The new deal with Amazon is proof that Paypal remains focused on diversification and finding ways to grow its future earnings. It is also on the bleeding edge of cryptocurrencies, and the transition to digital payments is only going to accelerate in coming years.
With all this in mind, the current drop in PYPL stock should be viewed as a buying opportunity. Get the shares while they are on sale.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.