What to Expect From PayPal’s First Post-eBay Quarter - TheStreet

PayPal (PYPL) - Get Report is set to report its third-quarter earnings after the close on Wednesday, marking its first quarter after spinning off from eBay (EBAY) - Get Report in July.

Analysts are expecting revenue of $2.3 billion with earnings of 29 cents a share, according to Thomson Reuters estimates. PayPal brought in $2.3 billion in revenue and earnings of 33 cents a share in the last quarter.

Since separating from eBay, PayPal has launched several new products, announced some new partnerships and acquisitions, and hit some new milestones.

The company launched PayPal.me, a peer-to-peer payment feature akin to Venmo (also owned by PayPal), but for a more global user base. It acquired two companies, Xoom and Modest, to broaden its capabilities, and expanded its One-Touch payment service to new markets.

PayPal also partnered with Macy's to further its in-store efforts, which have been lagging in the past.

In addition, the company announced that Braintree, which is owned by PayPal and provides backend payment services for apps such as Uber and Hotel Tonight, is on track to process $50 billion in transactions in 2015, up from $12 billion in 2013 when it was acquired by PayPal. And at the Money 20/20 conference on Tuesday, PayPal CEO Dan Schulman said the company had given out $1 billion in loans to 60,000 small businesses since it began its lending program two years ago.

Though shares dropped more than 16% during the quarter, they have now rebounded and are only down 3% from the spinoff.

Here's what analysts are saying about PayPal in advance of its earnings.

Josh Beck, Pacific Crest (Sector Weight)

Expect a beat/raise and strong near-term results, but we still have market-share gain assumptions concerns over the longer term. The e-commerce landscape remains healthy, with Amazon GMV [gross merchandise volume] growth of 32.7%, and eBay GMV growth of 6% excluding autos and on a constant-currency basis. While we are concerned about longer-term competitive developments, we expect minimal impact for PayPal in the near term.

Darrin D. Peller, Barclays (Overweight, $47 PT)

As it is the company's first quarter reporting as a stand-alone company, and various news items have led to recent volatility, we expect investors to be particularly focused on management commentary with regards to competitive dynamics and the fundamental growth outlook. Over the next few quarters, we see potential support for revenue growth from market share gains driven by the EMV [Europay, Mastercard, Visa] transition, and margin expansion opportunities from expected November/December implementation of interchange rate caps in Europe (potential incremental upside of 5 cents to 15 cents to FY16 EPS). On the other hand, we also expect competitors to continue investing in and publicizing their payments offerings, creating headline risk in the near term.

With the core business showing high teens revenue growth, combined with multiple future call options (money transfer, SMB and consumer credit, Venmo monetization, etc), we believe the company deserves a higher multiple than where it currently trades. We acknowledge the need for continued and consistent investment to fend off large competitors like Visa, MasterCard, and Apple but believe PayPal's substantial first-mover advantage and brand awareness in e-commerce is key, and continue to expect in-line if not outsized growth when compared with industry trends.

Bryan Keane, Deutsche Bank (Buy, $44 PT)

The ramp of One Touch rollout, monetization of Venmo, large merchant win (omni-channel win with Macy's) and expansion into payment processing for online gaming bode well. Despite take rate moderation from mix shift, we expect the operating margins to expand due to operating leverage.

We believe PYPL holds a significant first mover advantage over existing/ future mobile and online payments plays given its scale of ~169m users, 10m+ merchants, and over 2/3rds of the top 100 e-retailers. PYPL remains the most widely used digital wallet and is used 5x more than competing checkout options given its brand name and consumer trust as highlighted by recent Forrester research.

We believe PYPL's roll-out of One Touch will accelerate transaction growth and extend its lead over the competition. Although we believe there will be multiple wallet "winners," we are confident PYPL is the best way to play the mobile payments trends.

We believe investors should not be overly concerned with a moderation in PYPL's take rate in both the near- and medium-term, as the company has outlined its intent to aggressively push into high volume merchants and ecommerce players. At our September tech conference, CEO Dan Schulman suggested that a declining take rate would be a barometer for the company's success as pricing at large merchants is inevitably more competitive than traditional SMB's.

Jason Kupferberg, Jefferies (Buy, $44 PT)

Assuming PYPL reports a solid 3Q and again reiterates its guidance for 2015 as well as its medium-term outlook (both of which we think are likely), this should be a positive catalyst. Shares have been pressured the past two months by factors such as forced event-driven selling and speculation regarding potential competitive threats (which we think are overblown), and a solid 3Q print/outlook could be a step toward starting to build a more entrenched shareholder base.

PYPL announced on a company blog last month that the company has won Macy's as a new client. This new win covers the online, in-store, and in-app channels, reflecting PYPL's omnichannel strategy. In our view, this win is likely at least partially attributable to PYPL's recent acquisition of Paydiant, to bolster PYPL's in-store value proposition. It is plausible that the separation from EBAY affords PYPL the potential to sign other large merchants, but we await further data points of success in this area.