PayPal Holdings Inc.'s upcoming earnings report will shed light on its margins and the financial implications of its payment processing methods. While consumers are familiar with PayPal's branded checkout button on websites, the company also handles payments in a less visible manner, which has had an impact on its transaction margins.
Barclays analyst Ramsey El-Assal predicts that transaction margins will continue to face pressure due to the growth of the unbranded business and other factors like product migration. He expects these challenges to intensify in Q3 before easing in the future.
Key Factors to Watch
The current FactSet consensus projects an adjusted second-quarter earnings of $1.15 per share, compared to 93 cents per share from the previous year. Estimize, a platform that gathers estimates from various sources, including hedge funds and academics, has an average estimate of $1.19 per share.
FactSet analysts anticipate PayPal's revenue to reach $7.27 billion, up from $6.81 billion last year. Estimize contributors also project revenue of $7.27 billion.
Following previous earnings reports, PayPal's stock has seen mixed performance, with a rise in some instances and a decline of 12.7% after the most recent report. However, the stock has experienced a 6% increase this year, while the broader S&P 500 index has advanced 19%.
Among the 47 analysts tracked by FactSet, 32 have buy ratings, 14 have hold ratings, and one has a sell rating for PayPal's stock. The average price target stands at $89.79.
What else to watch for
PayPal's earnings will also serve as a barometer for consumer spending, especially when it comes to more discretionary purchases.
Revenue growth trajectory
El-Assal of Barclays wrote that the general growth of U.S. commerce spending "reads-through positively" for PayPal's June-quarter results.
Market share and competitive threats
Another area to watch will be indications about PayPal's market share. "By far the most significant negative for PayPal is the continued momentum of Apple Pay, which is rapidly closing the gap to PayPal in merchant acceptance," SVB MoffettNathanson analyst Lisa Ellis wrote recently.
The "rapid competitive encroachment by Apple Pay" seems "the single biggest competitive threat PayPal faces, and the most critical issue for PayPal's new CEO to tackle," she continued.
CEO replacement and CFO search
And about that next CEO: El-Assal will be looking for updates on the process of replacing Chief Executive Dan Schulman, who previously announced his plans to step down from the role around year-end. PayPal seeks a permanent chief financial officer as well.
"It is unclear whether more information might come during Q2 earnings, though we believe an announcement may be coming sooner rather than later in 2H," El-Assal wrote.