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Sell-Side Sold On PayPal's Q3, Bumps Up Price Targets

Sell-Side Sold On PayPal's Q3, Bumps Up Price Targets

Paypal Holdings Inc (NASDAQ: PYPL) reported Thursday after the market close third-quarter results, which showed 21-percent revenue growth to $3.24 billion and 31 percent non-GAAP earnings per share growth to 46 cents.

The payment processing platform said active customer accounts totaled 218 million, with over 17 million merchant accounts. Active customer adds were at 8.2 million. Payment transactions were up 26 percent to 1.9 billion, with total payment volume at $114 billion, up 30 percent.

The company upwardly revised its 2017 guidance, expecting revenues of $12.92 billion to $12.98 billion and non-GAAP earnings per share of $1.86-$1.88. For the fourth quarter, the company expects non-GAAP earnings per share of 50-52 cents on revenues of $3.57 billion to $3.63 billion.

Results and guidance were above the consensus view.

At time of writing, shares of PayPal, an eBay Inc (NASDAQ: EBAY) spin-off unit, were up a solid 4.22 percent at $70.09, representing an all-time high.

Momentum Continued At PayPal

William Blair analysts Robert Napoli, Cristopher Kennedy and Brian Hogan said momentum continued at PayPal, as evidenced by the new user addition of 8.2 million compared to 6 million in the first quarter and 6.5 million in the second quarter.

The analysts said the company is winning the digital wallet wars, thriving over competitive pressure from the online/digital space.

William Blair reiterated its Outperform rating on the shares of PayPal.

See also: They Grow Up So Fast: PayPal Now Outperforming eBay

Best Way To Play Mobile Payment Growth

BTIG said it sees PayPal as the best way for equity investors to play the global growth for mobile payments, with the company continuing to validate the view. Analyst Mark Palmer said the third quarter featured another beat-and-raise as well as acceleration in the growth of processing volume, especially on the mobile front.

"Yet many of its initiatives — the monetization of social peer-to-peer payment app Venmo, the expansion of instant-checkout feature One Touch, customer choice — are still in the very early innings," Palmer added.

As such, BTIG reiterated its Buy rating on PayPal and raised its price target from $70 to $81.

Accelerating Growth Across All Metrics

Baird analyst Colin Sebastian said PayPal's third-quarter results demonstrated accelerating growth across almost all key metrics, including TPV, revenue, transaction growth and net new customer additions.

The analyst sees multiple levers for ongoing market share expansion in the years ahead, given the roll out of Pay with Venmo complementing strong core PayPal growth. The management's new 2018 outlook sets a reasonable floor for growth and profitability, the analyst added.

Baird reiterated its Outperform rating on the shares of Baird and increased its price target for the shares from $65 to $80.

Between Top And Bottom Lines, Moving Parts More Sobering

Loop Capital Market's Joseph Vafi termed the revenue and bottom line growth as solid but harped over the ongoing deterioration in transaction margins. The analyst noted that much of the transaction margin deterioration was offset by considerable fixed cost leverage, but he raised questions concerning the sustainability of this offsetting impact.

Vafi also noted further deterioration in earnings quality amid an increase in stock compensation and other income.

Loop Capital Markets maintained its Hold rating, citing transaction margin compression, but lifted the price target from $57 to $67, based on its relative valuation analysis.

Outperform Thesis On PayPal Intact

Credit Suisse said it is positive on the third-quarter results, given the solid beats in revenue and earnings per share as well as strong payment volume growth and account growth. Analysts Paul Condra and Mrinalini Bhutoria noted that gross margins expanded after five quarters.

"With GAAP margins stabilizing and volume growth continuing to outperform, our Outperform thesis on PYPL remains intact," the analysts said.

Credit Suisse increased its earnings per share forecasts for the fourth quarter as well as the fiscal years 2017 through 2019. The firm also increased its price target from $70 to $74.

Related Link: Todd Gordon's PayPal Trade

Latest Ratings for PYPL

Mar 2021RedburnInitiates Coverage OnBuy
Feb 2021BTIGMaintainsBuy
Feb 2021Canaccord GenuityMaintainsBuy

View More Analyst Ratings for PYPL
View the Latest Analyst Ratings


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