November 16, 2021 8:00 AM
 — 
3
 min

The outlook for the 4th quarter disappointed investors, but the company retains its investment attractiveness

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PayPal in the third quarter of 2021 PayPal increased revenue by 13%, but the company's forecast for the current quarter fell short of market expectations. Revenue in July-September increased to $ 6.18 billion against $ 5.46 billion a year earlier, it turned out to be weaker than market expectations at $ 6.23 billion. Net income rose to $ 1.087 billion, or $ 0.92 per share, compared to $ 1.021 billion, or $ 0.86 per share, for the same period last year. Adjusted earnings rose to $ 1.11 per share from $ 1.07 per share a year earlier, in line with market consensus.

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TARGET PRICE:
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The total volume of payments on the company's platforms increased by 26%, to $ 310 billion, with a market forecast of $ 312.5 billion. The company noted that the figure could have grown by 31%, excluding losses due to the transition of the eBay online auction to its own payment system. The increase in the number of new active accounts in the PayPal system in the third quarter amounted to 13.3 million, which is 12% less than the same period last year.

During a press conference, management provided a disappointing 4Q forecast. At the end of the last month of 2021, the company expects revenues in the range of $ 6.85 billion to $ 6.95 billion, which looks weaker than the market forecast of $ 7.24 billion. Management expects that the adjusted earnings per share will be $ 1.12, while the market was expecting a reading of $ 1.28. By the end of 2021, the PayPal management expects an increase in the total volume of payments by about 33-34%, revenue - by 18% (to $ 25.3 billion), adjusted profit - by 19% (to $ 4.6 per share). The growth in the number of new active accounts is expected to reach 55 million, to 430 million.

The downgrade of the 4Q forecast came as an unpleasant surprise for us, so we had to make adjustments to the financial model. As a result, we are lowering our target value for PayPal shares from $ 317 to $ 268. Despite the revised valuation, we continue to have a positive view of the company's business. PayPal's long-term plans are to increase the number of users to 1 billion, which is almost triple the current client base, especially by expanding international operations. The company's top priority remains business development in the rapidly growing mobile payments market.

PayPal has begun providing customers with the ability to buy, store and sell a range of cryptocurrencies using an e-wallet. This allows the company to attract new customers and increase business volumes. The company will also benefit from the widespread adoption of contactless payments in the post-pandemic era, as well as continued growth in demand for electronic payments. PayPal announced that users of the Venmo mobile payment platform, which is only available in the US, will be able to pay for purchases on Amazon.com starting in 2022. We also appreciate PayPal's partnership with Walmart and Valero and Phillips 66. We continue to believe that PayPal can deliver more than 20% annual revenue growth.

PayPal is a payments technology platform that facilitates online global transactions. PayPal operates as an online acquirer, acting as a merchant aggregator – aggregating multiple small merchants under one merchant account and allowing the acceptance of online payments at a more attractive rate. The company operates in over 200 markets.

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