PayPal (Nasdaq: PYPL) shares finished flat following the company reporting strong Q1 results, beating on the top and bottom-line. Many mega-cap tech stocks have posted Q1 figures that topped expectations by a significant margin. Shares opened higher but this strength was sold into.
This is a change in character from how these stocks behaved over the past year. It's also a characteristic of stocks in bear markets. Therefore, in the near-term, investors should remain patient when investing in tech stocks as it could signal further near-term weakness especially as the headwinds for tech stocks are set to get more intense in the coming months.
Inside the Numbers
In Q1, PayPal reported $1.22 in adjusted earnings per share, topping expectations of $1.01 per share. Revenue beat at $6.03 billion vs. $5.90 billion. Another important metric - total payment volume - exceeded expectations at $285 billion vs. $265 billion.
This was a big quarter for the company as Q1 net income increased to $1.1 billion from $84 million. It also maintained its growth by adding 14.5 million new accounts and now has a total of 392 million. Revenue increased by 31% on a surge in online shopping.
The company believes that cryptocurrency trading is a catalyst for growth as it's bringing new users to its platform. On its conference call, the management said that crypto-traders log into the platform more frequently and there are signs that they are beginning to engage with other PayPal services.
PayPal also announced plans to roll out a next-generation, "digital wallet" in Q3 that will provide a "customized and unique shopping, financial services, and payments experiences." Other fintech companies have been able to consistently increase revenue per user with these apps.
In terms of guidance for Q2, PayPal sees adjusted EPS of $1.12 and $6.3 billion in revenue. This was slightly above expectations of $1.10 in EPS and $6.2 billion in revenue. For the full year, PayPal expects revenue to grow 20% to $25.8 billion, and adjusted earnings to grow 21% to $4.70. Both figures are slightly above expectations.
Stock Price Outlook
Given the strong report and encouraging news on its new product for Q3, shares were up 5.5% after-hours. But, shares ended flat as this strength was sold into. Overall for the year, PayPal is up about 5%. This is a better performance than many high-multiple stocks but lags the S&P 500's (NYSE: SPY) nearly 25% YTD gain.
The results confirm that PayPal is on track to achieve its goals, and its momentum remains strong. However, the short-term outlook for tech stocks remains rough, so investors are advised to remain patient and wait for a better entry point.