Fly Intel: What to watch in PayPal earnings report

PayPal (PYPL) is scheduled to report results of its second fiscal quarter after market close on July 29, with a conference call scheduled for 5:00 pm EDT. What to watch for: 1. OUTLOOK: During the company’s last earnings call, PayPal withdrew fiscal year 2020 revenue and earnings guidance. However, the company said it sees second quarter adjusted earnings per share growth between 15%-20% and expects revenue growth for the quarter of about 13%. 2. COVID-RELATED TAILWINDS: Last week, Morgan Stanley analyst James Faucette raised the firm’s price target on PayPal to $206 from $131, while keeping an Overweight rating on the shares. The shift to online driven by the COVID-19 pandemic will drive “stronger for longer” U.S. e-commerce growth, said Faucette, who sees PayPal being set to grow total purchase volume at or ahead of the rate of e-commerce growth ex-Amazon. The analyst added that he sees opportunities for PayPal to deliver 20% or faster compounding earnings growth as more profitability flows through to the bottom line. Voicing a similar opinion, Barclays analyst Ramsey El-Assal raised his price target on PayPal to $210 from $199, while keeping an Overweight rating on the shares. The analyst acknowledged that expectations are elevated for the second quarter, but noted that PayPal is “enjoying unprecedented COVID-related tailwinds.” With most investors confident PayPal will likely beat preliminary guidance, the focus instead is on the magnitude of a potential beat, and on signs of second half of 2020 sustainability regarding key metrics such active user adds and increased engagement, the analyst contended. 3. GOOGLE NEW ONLINE SHOPPING FEATURES: Bill Ready, Google’s (GOOG, GOOGL) president of commerce, announced last week that, “Soon, sellers who participate in our Buy on Google checkout experience will no longer have to pay us a commission fee. And, we’re giving retailers more choice by opening our platform to third-party providers-starting with PayPal and Shopify (SHOP)… We’ve heard from retailers that they want the ability to choose their preferred services for things like payment processing, inventory, and order management. That’s why we’re opening our platform to more digital commerce providers, beginning with Shopify for inventory and order management and PayPal and Shopify for payment processing.” 4. CRYPTO BUYING, SELLING: PayPal is planning to allow buying and selling crypto directly from PayPal and Venmo in the next few months, CoinDesk’s Ian Allison reported on June 23, citing three people familiar with the matter. PayPal can be used as an alternative means for withdrawing funds from exchanges such as Coinbase, but this would be a first in terms of offering direct sales of crypto, according to the report. One source said that, “My understanding is that they are going to allow buys and sells of crypto directly from PayPal and Venmo. They are going to have some sort of a built-in wallet functionality so you can store it there.” Following the report from Coindesk, Rosenblatt analyst Kenneth Hill said he would not be surprised by the potential addition as he believes a crypto offering would fit well with the user base, particularly Venmo users. Hill, who estimates the average revenue per user for Square’s (SQ) Cash App is more than triple that of Venmo’s, believes a crypto trading offering, as well as other “free” features that drive engagement, should have the positive long term effect of attracting new users that will turn into paying customers. Meanwhile, Wedbush analyst Moshe Katri said he views direct sales of cryptocurrency as another monetization vehicle, and thinks early monetization effort on both sides of PayPal’s platforms will result in improving revenue growth and better margins.