PayPal's eBay-Less Future Is In the Making

On Monday, PayPal Holdings Inc PYPL revealed its third-quarter revenue increased YoY as well as that it is joining forces with no other than the e-commerce titan itself, Amazon Inc AMZN. However, although shares rose as much as 6.3% upon the report, they reversed course during the earnings call and plunged more than 5% as the fintech pioneer reduced its full-year forecast due to a concerning macroeconomic environment.

Third-Quarter Figures

During the quarter that ended on September 30^th, total payment volume surged 26% to $310 billion with the addition of 13.3 million net new active accounts, making up 416 million accounts.

Adjusted earnings per share amounted to $1.11, exceeding $1.07 that Refinitiv survey of analysts estimated. Despite increasing 13% YoY, revenue amounted to $6.18 billion which was below the expected $6.23 billion.

Venmo

As of 2022, U.S. customers will be able to make their purchases both on Amazon.com and the Amazon mobile shopping app through Venmo that began supporting cryptocurrency services in April. Venmo's payment volume alone jumped 36% to $60 billion.

This deal comes as PayPal prepares an eBay-less future. Six years after the parties decided to go their separate wats, eBay Inc EBAY is now transitioning sellers to its own payment system with PayPal's volume on its marketplace dropping 45% in the quarter. As a result, eBay now accounts for merely 4% of PayPal's revenue.

Fourth-Quarter Guidance

Adjusted earnings are expected at $1.12 per share, less than $1.27 that Refinitiv consensus expected. Net revenue is also expected significantly below the estimate of $7.24 billion, or more precisely somewhere between $6.85 billion and $6.95 billion.

Full-Year Guidance

Economic growth in a challenging macro environment due to the end of stimulus payments and the spread of the Delta variant which has affected travel trends has resulted in lowered guidance, more precisely 18% revenue growth for the year. The growth estimate implies a revenue between $25.3 billion to $25.4 billion, while analysts expected $25.78 billion.

What About Pinterest?

Last month, reports surfaced that PayPal was in late-stage talks to acquire Pinterest Inc PINS. PayPal subsequently said it was not pursuing this acquisition "at this time" and president and CEO of PayPal, Dan Schulman addressed the matter on the earnings call without even mentioning the social curation website for sharing and categorizing images.

A New Crypto Chapter

The latest Amazon deal is the beginning of an exciting new chapter in which PayPal has been freed from the contractual obligations of the eBay operating agreement. But PayPal has already made its big crypto debut last year when it allowed its U.S. users to buy, sell, and check out with their digital assets. With its 33 million retailers, PayPal is well-positioned to challenge the leading market exchange Coinbase Global Inc COIN whose shares also dropped after its Q3 revenue was short of analysts' estimates on Tuesday.

The Verdict

The market focused more on a lowered guidance than on the potential of the Venmo and Amazon partnership as shares plunged 12%, which is the stock's biggest drop since COVID-19 started its relentless march across the globe in March last year.

Like many analysts who lowered their price targets after the call, JMP analysts feel that management is feeling a bit snake-bitten, like many others, by the abrupt turnaround in demand due to the rise of the Delta variant and consumer spending concerns. But the Amazon deal represents the bigger picture than the full-year guidance as, after all, great things take time.

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