PayPal Holdings, Inc. (PYPL) continued its long winning streak on Wednesday evening, posting a greater-than-expected profit of $1.08 per share on 23% revenue growth to $6.12 billion. Buyers took charge after the news, lifting the stock more than 6% to an all-time high above $265. A nod to cryptocurrencies marked the highlight of the bullish report, with the fintech juggernaut now allowing customers to use their crypto balances as funding sources at 29 million merchants.
- PayPal is trading higher after beating fourth quarter top- and bottom-line estimates.
- Customers can now use crypto balances at 29 million merchants.
- The stock lifted to another all-time high on Thursday.
Total Payment Volume (TPV) grew 39% to $277 billion, or 36% on a foreign exchange-neutral basis. PayPal added 16 million Net Active Accounts during the quarter, with older demographics shaking off old-school cash habits and joining the digital generation. PayPal now expects 28% revenue growth in first quarter of 2021 and is looking to post GAAP earnings per diluted share of around $0.70, much higher than the $0.07 reported in the same quarter last year.
The company benefited from its standing as a COVID-19 beneficiary in 2020, posting a phenomenal 116% annual return. The stock has added another 15% so far in 2021, even though most virus plays are losing altitude as investors wait for a return to normalcy. Market players understand that few customers return to pen and paper after they grow comfortable with digital transactions, suggesting that the stock can rally to much higher price levels in coming years.
Wall Street consensus on PayPal has been rock-solid for many months, with a current "Buy" rating based upon 35 "Buy," 4 "Overweight," 7 "Hold," and 1 "Underweight" recommendation. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $210 to a Street-high $350, while the stock is set to open Thursday's session on top of the median $269 target.
Fintech is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and increasingly smartphones. Fintech, the word, is a combination of "financial technology."
PayPal Weekly Chart (2015 – 2021)
The company came public in July 2015 as an eBay Inc. (EBAY) spinoff and eased into a trading range, with support at $30 and resistance in the low-$40s. A breakout in the second quarter of 2017 attracted strong buying interest, lifting the stock into the mid-$80s in January 2018. A summer breakout attempt failed, yielding range-bound action into early 2019, when a secondary buying wave completed another breakout.
This rally wave topped out in July in the $120s, ahead of a February 2020 test that triggered a violent reversal, dropping the stock more than 40 points into March. It recovered at the same trajectory and broke out again in May, posting impressive gains into September, when price action eased into a rectangle pattern. It cleared range resistance in December, reaching the $260s on Thursday while technicals flash a minor bearish divergence.
The weekly stochastic oscillator is marring the pristine outlook to some extent, entering a sell cycle at the end of January. Price action will have a chance to repeal that bearish signal on Thursday, with sustained upside suggesting clear skies while a steady downtick would reinforce an overbought theme that favors mixed February price action. In any case, the stock isn't close to a major reversal by any stretch of the imagination.
In a spinoff, the parent company distributes shares of the subsidiary that is being spun off to its existing shareholders on a pro rata basis, in the form of a special dividend. The parent company typically receives no cash consideration for the spinoff. Existing shareholders benefit by now holding shares of two separate companies after the spinoff instead of one. The spinoff is a distinct entity from the parent company and has its own management.
The Bottom Line
PayPal is trading at an all-time high after beating fourth quarter top- and bottom-line estimates.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.