On August 2, 2022, PayPal Holdings (NASDAQ: PYPL) released its report for Q2 and to great surprise and rejoicing, the results were far better than had been expected. Before the report, analysts had analyzed the company would post an Earnings Per Share (EPS) of $0.8683 on sales of $6.77 billion. Instead, the online payment-processing service posted an EPS of $0.95 on sales of $7.0B.
Obviously, this means the stock is doing better what anyone had anticipated, rallying the stock (+1.06 percent by end of day) even into the after-hours session (+1.2 percent, to just shy of $100). With that, analysts have devised an average price target of $109.25 in the range of $75 to $160.
Many analysts would argue that the stock is a Moderate Buy.
Tech Stocks Took A Beating This Year
While the stock value is certainly at the very low end of the 52-week range, it is crucial to recognize that not only was the most recent high of $308.53 just short of a year ago, the payment-processing giant is just one of many technology stocks that took a big hit this year. For example, by the middle of May, the FAANG stocks had fallen, collectively, approximately 37 percent.
FAANG, of course, is the acronym for the five major technology companies in the United States: Meta/Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Google/Alphabet (NASDAQ: GOOGL). Netflix, in particular, is down 70 percent on the year; although there are several variables that can contribute to such a decline. PayPal's slip, this year, may be just as complicated as what Netflix is currently experiencing.
What is Holding PayPal Down?
For one, PayPal's former parent company, eBay (NASDAQ: EBAY) continues to transplant their payment offerings away from PayPal. This means that PayPal's native platform—where, technically, it was born and bread—will no longer provide a stable foundation. Replacing eBay will not be easy for PayPal, who will likely now have to find multiple revenue streams to compensate.
Secondly, as more consumers return to stores in person as pandemic restrictions lift around the country, PayPal is going to see a decline. Of course, more people shopping in stores means less shopping online, where systems like PayPal rule the market. Indeed, spending on the PayPal online platform increased by a mere 15 percent in Q1 2022, to $323 billion. This is the company's shortest climb in at least the last five years. Now the company hopes they can eke out at least 15 percent raise in payment volume instead of an earlier hope of 23 percent.
Down By Half Through the First Half of the Year
PayPal stock has already lost more than half its value this year, alone. And that is why the Q2 earnings beat is so important, particularly when you observe the trends for the last year.
For example, Earnings per share (EPS) in Q2 2021 had a range of $0.97 to $1.22 with a consensus estimate of $1.12. Reported earnings was $1.15, which beat expectations by $15.17 percent.
In Q3 2021, however, the range was $1.04 to $1.12 with a consensus estimate of 1.08. But while the reported earnings of $1.11 certainly beat expectations, it was not as strong as the previous quarter.
Fourth quarter of 2021 was similar, with a range of $1.08 to $1.16 and consensus estimate of $1.12. The reported earnings registered in the window, at $1.11.
Overall quarterly growth was down -1.31 percent, until 2022. While EPS slipped significantly in Q1, it is certainly starting to bounce back. Q1 2022 range of $0.82 to $0.97; consensus estimate of $0.88, which is exactly where reported earnings fell.
For Q2 2022, analysts gave a range of $0.76 to $1.12 with a consensus estimate of $0.87. Actual earnings came in at $0.93, exceeding expectations by more than 7 percent. The numbers suggest that quarterly EPS growth has recovered significantly, now up 2.37 percent.
Annual Earnings Paint a Better Picture
Annually, the stock looks steady. For one, analysts gave a 2018 EPS range of $2.36 to $2.43 with a consensus estimate of $2.40. Reported earnings was $2.42. Similarly, analysts gave a 2019 EPS range of $2.94 to $3.11 with a consensus estimate of 3.07; reported earnings $3.10.
2020 offered some encouraging insight as analyst gave an EPS range of $3.65 to $3.96; with a consensus estimate of $3.79, which reported earnings exceeded at $3.88.
But reported EPS for 2021 met the consensus estimate of $4.60, which hit the top of the $4.50 to $4.64 estimated range. And this is just one of many reasons many analysts are confident in a MODERATE BUY rating for PayPal.
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