Should You Buy PayPal (PYPL) Stock Ahead of Earnings?

As investors continue to digest the latest quarterly report from Netflix NFLX, the floodgates have opened on the Q3 earnings season, and several more of our favorite consumer tech brands will release their new financial results soon.

One of this week’s other marquee tech earnings reports will be that of PayPal PYPL. Founded by a team of entrepreneurs that included Elon Musk and Peter Thiel, PayPal is a digital payments company that has revolutionized online transactions. And since spinning off from eBay EBAY in mid-2015, PayPal has been on fire.

A rise in demand for mobile payment solutions has led to PayPal shares gaining nearly 74% in 2017 alone. This momentum has helped PayPal become one of the tech sector’s hottest stocks of the year, which means all eyes will be on the company when it releases its latest quarterly report on Thursday.

Heading into its report date, PayPal rests just $2 per share below its all-time high. That fact adds even more pressure for the stock, as investors will want to see big results before sending shares any higher. So should you buy PYPL ahead of earnings? Let’s take a closer look!

Earnings & Revenue Outlook

According to our latest consensus estimates, PayPal is projected to post earnings of 44 cents per share and revenues of $3.17 billion. These results would represent year-over-year growth rates of 25% and 19%, respectively.

Investors will also be interested to see whether or not PayPal can exceed these earnings expectations. It’s worth noting that PayPal has met or surpassed the Zacks Consensus Estimate in each quarter since its spin-off, but we should also take a look at the stock’s Earnings ESP.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst revisions. This is done because, generally speaking, if an analyst reevaluates their earnings estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about an earnings beat. PayPal is currently a Zacks Rank #2 (Buy), but with an Earnings ESP of -0.14%, our predictive power is limited. Still, the company has a solid track record for surprises and has beaten consensus estimates by an average of 4.21% over the past four quarters.

Key Segment Details

If PayPal wants to blow investors away, it will need to post impressive results in several of its key segments. Luckily, we can use the Zacks exclusive non-financial metrics file to get a feel for how the company might do. These estimates are updated daily and are based on the independent research of expert stock analysts. Learn more here>>>

According to our latest consensus estimates, PayPal is slated to report that it reached 216 million active customer accounts in the quarter. This would mark a 12.5% year-over-year improvement and a 2.9% gain from the previous quarter. It’s also important to note that PayPal recorded 11.7% year-over-year growth in this category in Q2, so if our estimates hold up, it would mean that the company’s customer growth has picked up.

Furthermore, our consensus estimates indicate that total payment volume reached $109.03 billion in the quarter. This would represent year-over-year growth of 24.7%, which outpaces the 23.5% growth witnessed during Q2.

Investors will also want to keep an eye on any information related to Venmo, the PayPal-owned peer-to-peer payment system that is a hit with millennials. While Venmo is likely not a major money-maker for the company yet, it has exploded in popularity over the past few years and should help solidify PayPal as the mobile transactions company of today.

Bottom Line

With a Zacks Rank #2 (Buy) and a red-hot stock, PayPal is looking strong headed into its report date. The company is witnessing strong growth in several of its key segments, and that growth is translating into overall expansion on the top and bottom lines.

Nevertheless, shares are near an all-time high, which means the report will have to be exceptional if the stock wants to break into a new range.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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