PayPal Tumbles on News of Deal With Visa, AMD Returns to Growth and Skyworks’ Inventories Jump
Updated with information about an analyst downgrade of PayPal shares.
PayPal beats sales estimates, ups guidance and announces Visa deal
Recent speculation about an alliance between Visa (V) - Get Report and PayPal (PYPL) - Get Report was just validated. In tandem with each company's second-quarter report, the payments giants announced a long-term deal under which PayPal will no longer discourage users from paying with their Visa cards in favor of using digital wallets linked to bank accounts -- the latter payment approach carries higher margins for PayPal -- as well as share better data with Visa card issuers and holders and allow users to instantly move funds from PayPal and Venmo wallets to bank accounts using Visa debit cards.
In return, Visa is providing "economic incentives" (presumably lower fees) to PayPal, including some that are tied to higher payment volumes, and adding PayPal to its Digital Enablement Program, which stands to increase support for PayPal wallets in bricks-and-mortar stores. The deal also gives PayPal long-term certainty regarding fee rates.
The agreement feels like a calculated bet by PayPal that, with many users clearly wanting to use margin-crimping payment cards no matter how much PayPal urges them not to -- the gap between the company's net revenue growth and volume growth helps drive this home -- it's better off burying the hatchet with a company like Visa in exchange for lower and guaranteed fee rates. Similar deals with MasterCard (MA) - Get Report, American Express (AXP) - Get Report or Discover (DFS) - Get Report might be on the way.
As for PayPal's second-quarter report, it was business as usual, as the company continues signing up online merchants and rapidly growing its non-eBay transaction volumes. Sales grew 15% annually (19% excluding Forex) and slightly beat estimates, while EPS was only in-line due to a 20% increase in operating expenses to $2.28 billion. Total payment volume (TPV) grew 28% to $86 billion, a slight slowdown from the first quarter's 29% growth.
Active customer accounts grew 2% sequentially and 11% annually to 188 million, and processed transactions grew 25% to 1.4 billion. Mobile payment volume (closely watched) grew 56%, but still only made up 28% of TPV -- many consumers still clearly prefer to finish transactions on PCs, even as they use mobile devices to shop.
PayPal now expects 16% to 17% 2016 sales growth, better than prior guidance of 14% to 16%. With spending still weighing, EPS guidance is only slightly improved to $1.47 to $1.50 from $1.45 to $1.50.
Shares were up moderately after hours, but on Friday morning, they were plunging 6.9% to $37.38 as concerns about the Visa deal were voiced. Wells Fargo downgraded PayPal to perform on a belief that the deal, despite giving PayPal better access to offline merchants and potentially enabling partnerships with card issuers, will result in higher funding costs and margin pressure.
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AMD gains after beating estimates and issuing strong sales guidance
Though still losing money and facing stiff competition from Intel (INTC) - Get Report and Nvidia (NVDA) - Get Report , AMD (AMD) - Get Report appears to be in much better shape than it was a year ago. The chipmaker trounced second-quarter sales estimates and returned to positive growth in the process, while moderately beating EPS estimates. It also guided for revenue to be up 18% sequentially in the third quarter, plus or minus 3%. That's easily better than an average analyst forecast for third-quarter revenue of $1.12 billion, which implies 9% growth.
Driving the sales improvement: Revenue for AMD's Enterprise, Embedded and Semi-Custom unit rose 59% sequentially and 5% annually to $592 million. Sony's planned fall launch of a more powerful PlayStation 4 -- AMD is the PS4's processor supplier -- is undoubtedly helping. Microsoft's recent Xbox One S launch might also be helping.
AMD's Computing and Graphics units, which supplies PC CPUs and GPUs, posted revenue of $435 million -- down 5% sequentially, but up 15% from depressed year-ago levels. The launch of the first GPUs based on AMD's Polaris architecture, which significantly improves AMD's mid-range position (Nvidia still dominates the high-end), should provide a lift going forward. As should the upcoming launch of CPUs based on AMD's powerful Zen architecture.
The EPS beat was limited by the fact operating expenses totaled $342 million, down $11 million from a year ago but above guidance of $335 million. AMD was within 6 cents of a 52-week high of $5.57 in after-hours trading.
Skyworks slumps in spite of beating estimates, offering healthy guidance and upping dividend; inventories jump
Skyworks (SWKS) - Get Report, an RF chip supplier with strong Apple (AAPL) - Get Report and Samsung exposure, slightly beat fiscal third-quarter estimates and issued guidance that was roughly in-line with consensus analyst numbers (revenue slightly below, EPS slightly above). The company also hiked its quarterly dividend by nearly 8% and launched a new $400 million buyback program that's good for repurchasing close to 3% of shares at current levels.
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So why was the stock down over 4% after hours? Soaring inventories probably have something to do with it. Though its sales fell 7% annually to $751.7 million, Skyworks finished the third quarter with $437.6 million in inventories, up 35% sequentially and 60% annually.
That could cause some headaches in the coming quarters, and -- together with the in-line sales guidance -- might be a sign Skyworks expected stronger iPhone 7-related demand than what it's now seeing. There are plenty of reports indicating the iPhone 7 will feature only moderate improvements relative to the iPhone 6S, with 2017 models delivering larger improvements. Rival Qorvo (QRVO) - Get Report was also lower after hours.