Payment processors Block Inc. SQ and PayPal Holdings Inc. PYPL and cryptocurrency exchange Coinbase Global Inc. COIN announced their quarterly results late on Thursday.
What Happened: CANACCORD Genuity analyst Joseph Vafi maintained a Buy rating and $150 price target for Block shares. The analyst also retained a Buy rating and $160 price target for PayPal. For Coinbase, Vafi kept his Buy rating and $120 price target. Vafi's price targets imply an upside of at least 100% to each of the three stocks from Thursday's closing levels.
Block Can Grow Market Share By Leveraging On 2-Sided Network: Block’s dual ecosystem model continues to evolve and expand, with Cash App recording its highest quarterly inflow at $52 billion, Vafi noted. The analyst sees this as a function of increasing “Cash Card” and “Direct Deposit” growth.
Even amid the macro uncertainty, seller gross payment volume in the U.S. was steady in October, likely helped by market share gains.
“While near-term macro trends remain uncertain, we think Block is well positioned to leverage its two-sided network to drive further market share gains,” CANACCORD said.
Commenting on the quarterly results, the firm noted that net revenue growth, excluding Bitcoin BTC/USD was 37%, with transaction and subscription revenue climbing 17% and 71%, respectively.
“Buy Now Pay Later” contributed $105 million to revenue and $75 million to gross profit, Vafi said. Cash App transaction revenue increased 15%, driven by an increase in the number of transactions and the number of business accounts, and gross profit grew 51% to $774 million, he added.
See Also: Trading Strategies For PayPal Stock Heading Into Q3 Earnings
PayPal’s User Metrics Strong But Lack Of Diversification A Worry: PayPal’s efforts to invest in its best growth prospects are reaping benefits, Vafi said in a separate note. The company’s several initiatives from earlier this year are paying off, with the launch of its Venmo on Amazon Inc. AMZN and the announcement concerning integration into Apple Inc.’s AAPL payments products, he added.
That said, PayPal still remains an ecommerce payment play and has made less progress in personal finance and merchants solutions markets relative to peers, the analyst said. In a tougher macro scenario, less diversification is an incremental negative, he said.
“PYPL still wields a big stick, with 400+ million number of active users and ongoing expansion of user engagement,” Vafi said.
The analyst noted that the company adjusted downward its fourth-quarter GPV, citing slow start to holiday spending, but adjusted upward its earnings outlook, mostly on cost cuts. He termed the third-quarter results as sold, with EPS and revenue exceeding guidance.
The company added 2.9 million in net new user adds and its user engagement was strong, with the number of payment transactions increasing 15% to 5.6 billion, the analyst noted.
Coinbase Customers HODLing, Not Going Away: Coinbase remains sound regarding its strategy and roadmap, CANACCORD’s Vafi said, highlighting the exchange’s revenue diversification strategy through increased subscription & services, offshore expansion.
The analyst noted that the company reduced its operating expenditure by 22%, excluding an impairment charge.
“While many of COIN's customers aren't trading that much right now, they are HODLing and haven't gone away,” the analyst said.
Vafi said he remains focused on Coinbase’s blockchain Cloud strategy it is rolling out, which will likely enable Fintechs, enterprises, and established industry players more functionality via software and broader technology solutions. Heightened regulatory scrutiny industry-wide and company-specific is also under the scanner, he added.
Coinbase stock’s performance is 100% tied to underlying crypto spot prices over the medium term, the analyst said.
Delving into the third-quarter results, the analyst noted that net revenue fell 28% sequentially to $576 million in the third quarter due to its decision not to chase trading volume in some offshore jurisdictions. Adjusted EBITDA loss narrowed notably from the second quarter, reflecting the scope for more cost cuts, the analyst said.
Price Action: In premarket trading on Friday, Block was rising 14.43% to $61.69, PayPal was sliding 7.29% to $70.97 and Coinbase was gaining 8.26% to $60.41, according to Benzinga Pro data.
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