Paypal Holdings Inc (NASDAQ:PYPL) announced its Q3 earnings late last week. We ran a preview of the report, and concluded that “investors will be focused on revenue growth over 20% and TPV growth of 25%+, as well as an improvement in the monetization of Venmo from the current 17% level.”
At this point, the stock is soaring higher since the report against a very weak market context, especially where speculative tech stocks are concerned. Why? Because the company nailed it on Venmo TPV and monetization.
Paypal Holdings Inc (NASDAQ:PYPL), as a refresher, trumpets itself as a company that operates as a technology platform play to enable digital and mobile payments on behalf of consumers and merchants worldwide.
The company’s payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products.
The company’s platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. It also offers gateway services that enable merchants to accept payments online with credit or debit cards.
Hitting the Target
As noted above, PYPL hit the market with its Q3 report last week, and needed to convince investors that it was capable of monetizing Venmo post-acquisition of Braintree. So far, progress on that front has been too slow.
However, analysts and investors were positively surprised on Thursday afternoon when the company announced on its conference call “that it is reaching a tipping point in Venmo monetization as usage accelerated to 24% in Q3 compared to 17% in Q2”. That was music to the market’s ears.
The analysts were cheering it:
Needham noted “PYPL delivered solid 3Q18 results that were above expectations. Core payment trends remain strong with the company continuing to post impressive metrics across its payments platforms, while revenue from other value added services is also coming in stronger-than-expected despite the Synchrony credit sale. While the co also provided some upbeat data points on Venmo monetization efforts through the “Pay with Venmo” and instant transfer initiatives, they view the days where Venmo serves as a meaningful contributor to EPS growth as being in the distant future. With the stock trading at 24.5x ex-cash FY19 EPS estimate, they view the risk-reward as neutral given PYPL’s plans for 20% EPS growth over the next 3-5 years.”
Oppenheimer reiterated a $95 price target. Credit Suisse said, “PayPal-as-a-Service; Venmo is real: Raising estimates, $100 tgt”.
The stock gapped above its 200-day simple moving average in response, and held up on Friday and again on Monday despite a rough market environment.
Broadly speaking, this has been an extremely difficult market tape in which to post victories that are more than just theoretical. We have seen a number of very strong reports get solid in the following two days (just ask Netflix and Adobe). For Paypal to gap and go through the 200-day and then to hold up this well is a very bullish signal for shares.
We will update the stock again soon based on new inputs from the company. But we wanted to get our thoughts out there on the stock at this point.