With US consumer spending recovering from COVID-19 pandemic lows, it seems that people will be more inclined to spend digitally in the months ahead. This is reflected in the recent performance of the PayPal share price [PYPL].
Having gained 77.8% in the last 52 weeks, to $306.80 at the close on 26 July, the PayPal share price’s blockbuster last year has shown no sign of letting up. Its share price is up 31.7% since the start of 2021 and 7% in the last month, reaching an all-time high of $310.16 during intra-day trading on 23 July.
77.8%
PayPal's share price gains over the last 52 weeks
Its share price has outpaced other fintech darlings, such as Square [SQ], which is up 21.30% year to date and KBW Nasdaq Financial Technology Index [KFTX], which has gained 13.4% in the same period.
Investors will be keen to know which direction the PayPal share price might go when the company reports its earnings on 28 July.
No surprises
PayPal’s successful share price run was backed in May by a strong Q1 2021 earnings report. For the three months to end-March, the company’s revenue was up 34% to $6.03bn from $4.62bn in Q1 2020 versus $5.90bn as expected by analysts polled by Refinitiv. Earnings per share were $1.22 versus the $1.01 per share expected.
Total payment volume (TPV) was $285bn versus $265bn in line with predictions by FactSet analyst. The company also added 14.5 million new active users (NAUs), taking the total active count to 392 million up from 325 million in Q1 2020.
The mobile payment company’s Q1 2021 earnings beat was no surprise. It came on the back of a record fiscal year in 2020, which saw total revenue of $21.45bn, while TPV was a mammoth $936bn, up from $712bn in 2019.
For Q2 2021 guidance, PayPal is calling for earnings per share of $1.12 on revenue of $6.25bn. This is at the lower end of the range expected by analysts. According to Zacks, the consensus is earnings of $1.13 per share on $1.32bn revenue.
$6.25billion
PayPal's expected Q2 revenue
Net additions of 14.5 million NAUs in the first quarter suggest the company may add 52–55 million in the full year up from its previous forecast of 50 million. It’s assumed that Q2 numbers will be lower than Q1 but Q3 and Q4 are both expected to be stronger.
The PayPal share movement reflects how the company has benefitted from the COVID-19 pandemic which accelerated e-commerce trends, including merchants forced to pivot their business from offline to online. However, as CEO Dan Schulman emphasised on the earnings call, PayPal has also benefited from being an early adopter of cryptocurrency and crypto-based services.
“This whole idea around establishing a digital currency and blockchain business unit inside PayPal is to think about what is the financial system going to start to move towards? And how can we be a shaper of that, a leader within that and not a reactor to how that’s happening,” said Schulman.
“This whole idea around establishing a digital currency and blockchain business unit inside PayPal is to think about what is the financial system going to start to move towards? And how can we be a shaper of that, a leader within that and not a reactor to how that’s happening” - CEO Dan Schulman
In a note to clients seen by Barron’s, Evercore ISI analyst David Togut argued that supporting cryptocurrency and allowing users to buy and sell it “could substantially increase both engagement and transaction margin.”
In March, PayPal announced a service that allows US consumers to pay merchants using cryptocurrency by converting holdings into fiat at the checkout. As of the end of May, the company allows users to withdraw their cryptocurrency holdings to third-party wallets.
Earlier in July, Togut raised his target for the PayPal share price from $313 to £370, implying a 20% increase from its 23 July closing price.
According to a note also seen by Barron’s, Piper Sandler managing director Christopher Donat believes PayPal has a “runway for elevated growth that we believe should last for several quarters — and likely years. We continue to think PayPal is one of the best-positioned apps to become a Super App for financial services.”
Donat initiated coverage of PayPal in early July, rating it overweight and giving a price target of $210, Barron’s noted.
The general sentiment among Wall Street is that PayPal will continue to be a solid play on fintech, which has underperformed as a sector in 2021. Global X Fintech ETF [FINX] has a daily total return year to date of just 0.8% and Simplify Volt Fintech Disruption [VFIN] has a return of -8.4%.
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