PayPal (Nasdaq: PYPL) topped earnings and revenue forecast for the third quarter, however, shares ended slightly lower as the company's fourth-quarter guidance came in below expectations. PayPal has been a big winner off the March lows, climbing more than 100% as the pandemic led to a surge in eCommerce and digital payments. Many eCommerce companies reported that the pandemic led to years of growth being pulled forward in months.
While PayPal's stock was a big winner following the March bottom, like many tech stocks, it's been range-bound since July, trading between $175 and $210. The price action, following a strong earnings report, clearly indicates that good news is priced into the stock. Yet, on a long-term basis, it's hard to imagine PayPal not doing well if eCommerce and digital wallets keep growing at the same rate.
Inside the Numbers
In the third quarter, PayPal reported $5.46 billion in revenue which was slightly better than expectations of $5.43 billion. Earnings per share came in at $1.07 which beat analysts' expectations of $0.94.
Another bright spot for PayPal was the growth in total payment volume to $247 billion which is a 38% increase from 2019's Q3. In the quarter, there were a total of 4 billion payments which is a 30% increase. For the full-year, PayPal expects payment volume to grow to 30%. Another bright spot was Venmo which saw volumes increase by 61% to $44 billion and was an acceleration from 52% growth.
Another metric showing growth was payment transactions per active account which reached 40.1 from 39.2. In sum, PayPal is adding users, each users' account size is growing, transactions per user is growing, and the total transaction size is increasing as well.
Stock Price Outlook
The company also gave updates on growth initiatives like letting users buy a cryptocurrency and a credit card linked to Venmo accounts. Based on Square's (Nasdaq: SQ) efforts with similar endeavors, these should drive growth and more activity on the platform.
In terms of its stock price outlook, PayPal is similar to many tech stocks. The underlying business remains attractive and will grow regardless of economic conditions. However, there are valuation concerns and most of the good news is priced in, including the acceleration in growth due to the coronavirus.
Further, the news of the coronavirus vaccine may trigger a rotation from growth to value stocks. So, while the long-term outlook for PayPal remains attractive, investors should remain patient before initiating a position.