Wednesdays With Wedbush On PreMarket Prep Plus: The Payments Sector Outlook

Moshe Katri, fintech and payments analyst at Wedbush, joined this week's "Wednesdays with Wedbush" segment on PreMarket Prep Plus.

It turned out to be a good day to have him on, as Paypal Holdings Inc. PYPL reported third-quarter earnings Monday and Coinbase Global Inc. COIN reported after the close Tuesday.

The Macro Outlook: At the top of the interview, Moshe discussed the macroeconomic environment surrounding the payments sector.

A few different factors tempered his expectations for earnings in the current quarter and the “sequential moderation in volume growth,” the analyst told Benzinga. 

The “winding down from the federal government stimulus payments” is an impact on the pace of transactions, he said. In addition, the still lasting “impact of COVID-19-related closures globally” and “limited corporate travel” played a significant role in the quarter.

Finally, from a “big picture perspective, there are concerns to future regulation” of the industry, he said. 

Also, the emergence of the “buy now and pay later” business model weighed on the quarterly results, Katri said. 

New Headwind For Paypal: Along with the aforementioned factors playing a role in the quarter, PayPal cited some “supply chain constraints,” the analyst said. 

“Obviously if a product is not available, you are not going to be able to sell it and it will affect overall volume.”

Moving forward, “the tepid guidance” from the company may have investors cautious on the issue. The withdrawal of payments from the  eBay Inc. EBAY platform is the main reason for the lowered expectations, Katri said. 

Discussing the speculation surrounding the Pinterest Inc. PINS transaction, the analyst said that on the conference call, the upper management of the company mentioned that it “has not really considered doing any large transaction.”

Things To Like About Coinbase: Despite the issue trading lower off its third-quarter report, Katri discussed a few positives regarding Coinbase going forward. 

The first: the company is building “an ecosystem that really has everything to do with crypto and will gradually expand its non-trading based revenues.”

In addition, its asset base “continues to grow and is up to $255 billion, which is up over 600% for the quarter.”

On a negative note, from the release of the lower than expected numbers, the company cited “take-rates being down significantly,” Katri said. 

That reinforces the “bear case for the issue, since you should see transaction rates compressing.”

This was the result of many of the transactions shifting to CoinPro, which has lower transaction fees, the analyst said. 

He expects “trading volume to pick-up in the next quarter,” but warns it will continue to be a volatile issue for investors.

The full discussion with Katri from Wednesday's show can be found here: