Here's What Analysts Thought Of PayPal's Q1

Paypal Holdings Inc PYPL announced Wednesday after the market close first-quarter non-GAAP earnings per share of $0.44, ahead of the consensus estimate of $0.41. Revenues were up 17 percent to $2.98 billion, also topping the $2.94 billion-consensus estimate. The company's second-quarter and full-year guidance was upbeat.

Here are the views of some sell-side analysts after the beat:

Operating Expense Control Helps Tide Over Transaction Margin Headwinds

Pacific Crest Securities, a division of KeyBanc Capital Markets, said PayPal managed to offset the impact of an 80-basis point drop in transaction margin with lower other expenses.

Pointing to the company's "beat and raise quarter," analysts Josh Beck and Ankit Kapoor said payment volumes were strong, with 25 percent year-over-year growth. Although believing greater operating expenditure discipline prompts a higher valuation, the analysts said they remain Sector Weight, given that they are neutral on key debates surrounding choice, credit and Venmo.

Core PayPal Momentum Robust

Deutsche Bank attributed the better than expected first-quarter results to the core PayPal strength and strong margins. Despite the firm not expecting much upside, the company surprisingly beat its expectations and raised its guidance for the first time since going public.

Analysts Ashish Sabadra and Korey Marcello said customer choice mix shift continues to track better than expected. Meanwhile, the analysts do not expect the international rollout to materially change the current transaction margin trend.

"In addition, Pay with Venmo beta was announced for PayPal merchants and we expect to start seeing some contribution in FY18 and beyond," the analysts said.

Deutsche Bank raised its 2017, 2018 and 2018 earnings per share estimate by $0.05 each. The firm reiterated its Buy rating on the shares of the company and has a $52 price target on the shares.

Impressive Results — Oppenheimer

Oppenheimer termed PayPal's first-quarter results as impressive. Analysts Glenn Greene, Andrew Hummel and Adam Dettmer said they are encouraged by another strong quarter of TPV/revenue growth.

"PYPL appears confident it can offset 'customer choice' margin headwinds in FY17 with leverage on other expenses," the analysts said.

Oppenheimer views PayPal's valuation as attractive, reiterating its Outperform rating and raising its price target to $50 from 45.

Robust TPV Growth And Strength In Key Metrics

Cantor Fitzgerald attributed the better-than-expected first-quarter results to robust growth in TPV and strength in key metrics. The firm noted that costs from the rollout of the Customer Choice initiative was tracking in line with the company's expectations and the program provides a lift in user engagement and new customer growth.

Over time, analysts Naved Khan and Kip Paulson view this as a net positive. Additionally, the analysts think continued robust growth in the adoption of OneTouch should translate into a nice tailwind for TPV and revenue growth for the remainder of 2017.

"We view the raised 2017 outlook as a sign of mgt's growing confidence in its ability to sustain the growth momentum and remain constructive on the name," the analysts concluded.

Cantor Fitzgerald reiterated its Overweight ratings on the shares of PayPal and raised its price target on the shares to $53 from $48.

Rating/Price Target

• Pacific Crest: Sector Weight.
• Deutsche Bank: Buy/$52.
• Oppenheimer: Outperform/$50.
• Cantor Fitzgerald: Overweight/$53.

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