PayPal Holdings Inc.’s story will be all about margins when the payment-technology company posts results after the close of Wednesday’s trading.
Wall Street remains focused lately on the various ways PayPal PYPL, -0.38% processes payments — and the financial differences between them. While consumers are familiar with PayPal’s branded checkout button on websites, the company also processes payments in a more behind-the-scenes fashion in other cases, and as that part of the business has grown on a relative basis, it’s weighed on PayPal’s overall transaction margins.
Barclays analyst Ramsey El-Assal said he expects continued pressure on transaction margins relative to a year before, thanks the strong growth of the unbranded business as well as other factors including product migration and the mix of domestic versus cross-border transactions.
“We further expect these headwinds to intensify into Q3, before beginning to abate thereafter,” he wrote in a recent report.
Here’s what to watch for when PayPal delivers its results.
What to watch for
Earnings: The FactSet consensus is for $ 1.15 a share in adjusted second-quarter earnings, up from 93 cents a share a year before. On Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate calls for $ 1.19 a share.
Revenue: Analysts tracked by FactSet said they are expecting PayPal to post $ 7.27 billion in revenue, up from $ 6.81 billion a year earlier. Those contributing to Estimize also expect $ 7.27 billion in revenue.
Stock movement: Shares of PayPal have risen following half of the company’s past five earnings reports, though they declined 12.7% after the most recent one. The stock is up 6% so far this year, as the S&P 500 SPX has advanced 19%.
Of the 47 analysts tracked by FactSet who cover PayPal’s stock, 32 had buy ratings, 14 had hold ratings, and one had a sell rating, with an average price target of $ 89.79.
What else to watch for
PayPal’s earnings will also serve as a barometer for consumer spending, especially when it comes to more discretionary purchases.
“Given consumer spend remains resilient and unemployment low, we believe PayPal’s [full-year] revenue growth trajectory remains intact, which could provide room for operating margin outperformance, keeping us above PayPal’s full-year EPS guide,” UBS analyst Rayna Kumar wrote.
El-Assal of Barclays wrote that the general growth of U.S. commerce spending “reads-through positively” for PayPal’s June-quarter results.
See also: American Express earnings show record spending as exec says, ‘the U.S. consumer just looks really strong’
Another area to watch will be indications about PayPal’s market share. “By far the most significant negative for PayPal is the continued momentum of Apple Pay, which is rapidly closing the gap to PayPal in merchant acceptance,” SVB MoffettNathanson analyst Lisa Ellis wrote recently.
The “rapid competitive encroachment by Apple Pay” seems “the single biggest competitive threat PayPal faces, and the most critical issue for PayPal’s new CEO to tackle,” she continued.
And about that next CEO: El-Assal will be looking for updates on the process of replacing Chief Executive Dan Schulman, who previously announced his plans to step down from the role around year-end. PayPal seeks a permanent chief financial officer as well.
“It is unclear whether more information might come during Q2 earnings, though we believe an announcement may be coming sooner rather than later in 2H,” El-Assal wrote.