PayPal Stock A Good Bet Post Recent Q4 Earnings Release

  • PayPal reported Q4 2015 earnings with better-than-expected results and in-line guidance.
  • Investors’ concerns were dismissed, and PayPal presented impressive growth across the board.
  • Impressive growth in mobile transaction and expanding emerging revenue streams while strengthening the core business make PayPal an attractive investment for the long run.

E-payments giant Paypal Holdings (NASDAQ:PYPL) reported its Q4 2015 earnings a few days ago, beating analysts’ consensus for revenue and EPS, issuing in-line guidance, and announcing a $2B buyback program. Since the split from eBay (NASDAQ:EBAY), PayPal’s stock fluctuated a lot and experienced a long 20% downtrend since July 2015. The two-day rally of 12% in PayPal’s stock price corrected some of the sell-off. However, the stock is still trading below the price at the date of the spin-off.
PYPL stock chart

PayPal stock price chart by amigobulls.com

In an earlier article published before the earnings release, I highlighted four main focus areas: 2016 guidance, core transaction business growth, mobile progress, and value added financial services. PayPal’s guidance for Q1 and full year 2016 were in line with analysts’ consensus, which is much better than eBay’s soft guidance that triggered a 10% sell-off in the e-commerce giant’s stock. Even though PayPal did not issue a higher guidance than expected, only in-line figures, the fact that eBay disappointed analysts, highlighted PayPal as the superior of the two. As investors’ concerns rise about an extremely volatile year in the market and in the midst of intensifying competition in the e-payments space, an in-line guidance is reassuring investors and reducing the level of anxiety about PayPal’s stock for 2016. At least for now.

As shown in the chart below, PayPal increased revenues in both segments. The core transaction business processed $82B in total payment value (‘TPV’) and generated $2.2B in revenues in Q4, which represents an impressive increase of 29% YoY in TPV and 15% YoY in revenues. Out of the $82B, almost 25%was generated from mobile transactions. That reflect a 45% increase YoY. Core transaction revenues and mobile revenues from these sales are necessary to strengthen the company’s core business before it attempts to penetrate or monetize new businesses.

PYPL_chart 10_012816

Looking at PayPal’s emerging revenue streams—Braintree, Xoom and Venmo—PayPal reported progress in many of these initiatives. PayPal closed the Xoom deal this quarter, which added one percent to the revenues growth in Q4 and added 1.6 million customers. PayPal’s Braintree was implemented into Facebook Messenger to power the new ride-hailing payment option directly from the Messenger app to enable customers to book and pay for Uber rides ordered through Messenger without the need to process the transaction in an additional external app. Venmo, the leading P2P transaction payment service for millennials, now enables customers to perform in-app purchases and book tickets through Gametime, or meals through Munchery.

The increasing attempts of PayPal to strengthen its core business while expanding its emerging businesses allowed the company to increase its customer base by 6.6 million customers, to a whopping 179 million active customer accounts.

PayPal announced the initial phase of a new partnership with Alibaba (NYSE:BABA) where Alibaba’s wholesale customers will be allowed to pay using PayPal. This is the first major partnership with an eBay-rival e-commerce company that PayPal is looking to engage in. Partnerships like this one were one of the positives for PayPal, as a standalone entity, following the eBay spin-off. While rumors of a deal with Amazon wouldn't have materialized into an actual revenue-generating agreement, the partnership with Alibaba is a great step in the right direction towards penetrating new e-commerce platforms while keeping the eBay business.

Looking forward towards the rest of 2016, PayPal investors should maintain their optimism, as I believe that PayPal stock will continue to rise above $40. Sell-side shops like Mizuho, Citi, BTIG, Wedbush, and RBC are all bullish on PayPal, citing the strength of PayPal’s core business, the company’s market leadership, mobile payment growth, and emerging revenue streams. In the long run, I see PayPal as a good holding to gain from the increased popularity of e-payments.

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Comments on this article and PYPL stock

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"PayPal Stock A Good Bet Post Recent Q4 Earnings Release"—You have to be joking, of course ...

Notwithstanding the constant stream of delusional and disingenuous nonsense that flows from eBay/PayPal, the share prices of these two clunky operators demonstrate the reality ...

Aug 2007: (pre John Donahoe) AMZN ~$40; EBAY ~$40;
Jul 2015 (pre eBay-PayPal split): AMZN ~$480; EBAY ~$66;
Jul 2015 (post-split): AMZN ~$530; EBAY ~$28; PYPL ~$37;
Currently: AMZN ~$584; EBAY ~$23; PYPL ~$36—LOL
eBay is effectively going backwards, at a rate of knots ...

Regardless of the "spin-off" of PayPal from eBay, eBay and "PreyPal" remain joined at the hip, and anyone that thinks otherwise is uninformed; and, thanks to a continuation of most of the imbecilic policies introduced over the eight year reign (2007–2015) of the "Pain from Bain", John Joseph Donahoe II, the eBay marketplace is continuing on its slow journey down the toilet; nevertheless, during Johnny Ho's occupation of the eBay corner office, this cretin and his gang of hand-picked Keystone Kops still managed to obtain for themselves massive, unearned, "performance" bonuses—while the company's shareholders received not a penny ...

PayPal is a clunky, non-deposit insured, virtually non-regulated, "pretend" bank; a payments intermediary that, in the main, rides on the back of the world's banks' existing payments systems with no formal agreement with those banks other than PayPal's operating of a credit card merchant account facility with, and the making of direct debits on users' bank accounts via, their own "real" bank. Even more perilous (for PayPal's shareholders), the great majority of PayPal's business still originates from its (still) effectively mandated place on the eBay marketplace, so it logically follows that—with the cretinous Johnny Ho-Ho-Ho now sitting at the head of the PayPal boardroom table—"PreyPal" will be accompanying eBay on its journey to the sewage farm.

The reality is, PayPal's parasitic, intermediary, payments operation has little long-term future, outside of the likes of the atrophying eBay marketplace, now that professional online/mobile payments offerings from MasterCard ("MasterPass") and Visa ("Visa Checkout") are available to any professional online merchant that has (or can obtain) a credit card merchant account with a real bank. And, with respect particularly to "mobile" payments, notwithstanding Apple Pay's disappointing initial showing, methinks Apple Pay, Samsung Pay, Android Pay, "MasterPass", and "Visa Checkout", that is, those operators that have formal relationships with the retail banks and MasterCard/Visa, will soon enough cut off the flow of oxygen to a great deal of the clunky "PreyPal" operations—LOL ...

eBay is likely the most unscrupulous commercial entity operating on this planet; but, have no fear, eBay is an equal opportunity fraudster—demonstrably—they will knowingly aid and abet the defrauding of buyers by unscrupulous eBay merchants who bid on their own auctions, and of honest sellers by unscrupulous buyers—as long as there is a financial benefit in such fraud for eBay; and if anyone thinks that the clunky "PreyPal" is any more scrupulous, given their equally poor customer service and lack of any effective mediation of transaction disputes (sans a hard-wired bias towards the buyers/payer that they necessarily now have to pander to), good luck to all you small online merchants who are using "PreyPal" ...

Pierre Omidyar can now only dream about how much more fabulously wealthier he might have been had he not given the cretinous Johnny Ho the key to the eBay corner office; yet, incomprehensibly, he has allowed this headless turkey to now occupy the seat at the head of the boardroom table at "PreyPal."—LOL!

In desperation, eBay recently invited consumers to auction their unwanted Xmas gifts on eBay. And, if you didn't know what your unwanted gift may be worth, eBay's advice was to start the auction at 99c and watch the fun—as your item likely sold for 99c—always presuming you weren't bidding on the auction yourself (and assuming that you or anyone else was able to find the listing in a search), in which case you would likely finish up buying it yourself; but that's OK with eBay too; they don't mind whether the sale is real or faux, as long as they get their final valuation fee ...

The eBay executive suite—where the incompetent mingle with the disingenuous, the unscrupulous, the malevolent and the outright criminal, and the just plain stupid …
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