PayPal Earnings Preview: What Should Traders Know
PayPal Earnings Preview: What Should Traders Know
The company predicts its new PayPal Open will contribute to growth
- PayPal is set to announce earnings before the market opens tomorrow.
- The company’s earnings are expected to increase from a year ago, but it faces economic pressures.
- The options market expects a +/- 4.85 point move, or 7.5%.
PayPal (PYPL) is expected to announce first-quarter fiscal earnings tomorrow before the market open. It will be one of the first FinTech companies to report before heavy hitters like Microsoft (MSFT) report later this week.
The broad market decline caused by the U.S. trade war hit PayPal hard in February and March, dragging the stock price down by 24% during the period. Prices have moderated in April amid a rally in tech stocks, with the price nearly unchanged through the month, as fears over trade and the implications for the global economy eased.
Still, PayPal derives a large portion of its revenue from outside of the United States. A prolonged trade war could hurt its margins both domestically and abroad. The easing tensions in the trade war are a welcome sign for the company because avoiding a global recession would help bolster its primary revenue generating segment, which comes from consumer transactions.
PayPal is coming off a strong 2024, when it achieved a return to profitable growth. In February, the company held its investor day and outlined plans for accelerating growth. By 2027, the company expects high single-digit transaction margin dollar growth and low teens non-GAAP earnings per share (EPS) growth.
It will focus on PayPal Open, a new merchant offering that consolidates its services into one platform for businesses. This will create a comprehensive ecosystem for the company’s services, and it will be available in the U.S. this year before expanding to Germany and the U.K. next year.
What do investors expect?
According to TradingView, EPS for the first quarter is expected to cross the wires at $1.16, which would compare to $1.08 a year ago. The average estimate for revenue is $7.85 billion. That would be up from $7.7 billion a year ago.
PayPal has a solid track record of beating estimates. The company has exceeded EPS and revenue estimates in three of the last four quarters, although it did miss revenue for Q1’24.
Analysts are mostly bullish on the stock, with 24 strong buy and buy ratings, 21 hold ratings and only three strong sell ratings. The average one-year price target is 83.39, representing a 29% increase from today’s stock price of 64.72.
Trading PayPal earnings
PayPal traded with an implied volatility rank (IVR) of 51.4 as of today. That means volatility is slightly elevated compared to the past 12 months of trading. The options market shows an expected move of +/- 4.85 points, or 7.5% of the current stock price.
The modestly elevated volatility gives options traders who prefer a premium selling strategy a little juice to play with. For those expecting a beat on earnings, selling a put spread could work out well for those with a bullish bias. Alternatively, for those expecting a miss, a short call spread strategy could take advantage of the reduction in volatility post earnings.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. #@fxwestwater
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