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Why PayPal Shares Are Defying Gravity

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PayPal  (PYPL)  beat earnings estimates handily, but also guided for another strong quarter, providing some affirmation for the narrative that the accelerated consumer move into e-commerce resulting from the at-home environment could be more sustainable and less of a one-time tailwind.  

The stock rose 2.9% to $190 a share in post-market trading after having risen 4.73% in regular hours. 

PayPal’s impressive quarter was likely partially driven by an e-commerce tailwind from stay-at-home orders, which management only mentioned implicitly. Although the stock had run up into earnings — up 18% since June 8 and trading at an expanded 50 times next year's earnings — the stock was still able to rise after earnings. Some tech investors are wondering if the accelerated digital trends during the pandemic are a one-time benefit or if they can model higher growth rates in out-years. PayPal’s strong guidance may provide some affirmation of the latter. 

Here were the results against Wall Street's expectations: 

  • Revenue: $5.26B v. $4.99B (actual: +22% year-over-year) 
  • Total Payment Volume: $222B v. $210.B (+29%)
  • Estimated Take Rate: 2.3% v. 2.5% (-0.3 percentage points) 
  • Operating Margin: 28% v. 24% (+5 percentage points)
  • Adjusted EPS: $1.07 v. 87 cents (+49%) 

Here’s what management said:

"In the midst of the COVID-19 pandemic, digital payments have become more important and essential than ever. Our record performance in the second quarter — our strongest quarter ever — reaffirms the relevance of PayPal in the unfolding digital future. We’re committed to supporting our consumers and merchants as they work to safely navigate this new reality.”

PayPal guided for current quarter revenue growth of 23% and adjusted EPS growth of 25%. This guidance is raised from previous estimates "based on strong momentum,” the company said. 

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