Since its last earnings report, the PayPal Holdings Inc. family has gotten a bit bigger.
PayPal PYPL, +0.42% has announced four acquisitions in the past two months, committing more than $2.7 billion in total. The company’s earnings report, scheduled for Wednesday after the bell, will provide investors with their first opportunity to hear from management about how all the new additions fit into the company’s general strategy.
PayPal’s approach to acquisitions these days is intriguing, because the company has opted to go after a number of companies, of various sizes, rather than make a single blockbuster deal. The strategy has sparked debate among Wall Street analysts, some of whom are upbeat about the incremental capabilities that PayPal will get with these purchases. Others question whether the company is spending up on the right things.
The biggest of PayPal’s deals over the past few months was for iZettle, a Square Inc. SQ, +2.07% rival that the company bought for $2.2 billion ahead of a planned initial public offering. IZettle makes card readers that allow small businesses in Europe and Latin America to accept card-based payments.
See also: PayPal’s iZettle purchase is likely to be followed by a lot more fintech M&A
“We do not believe this was the acquisition shareholders were anticipating, the price paid appears expensive, and acquiring iZettle does not alter how smaller merchants perceive PayPal as a tender type given the plethora of options already available for purchases in-store,” Mizuho analyst Thomas McCrohan wrote at the time. He has a neutral rating on the stock.
Susquehanna’s Jamie Friedman recently showed more optimism. He expects that the acquisition will be one-cent dilutive to this year’s earnings per share but predicts it’ll add 5 cents to EPS in 2020.
“PayPal is finally poised to become relevant offline,” he wrote, boosting his target price to $105, one of the Street’s highest. He has a positive rating on shares.
The company has also made smaller deals for Jetlore, an artificial intelligence startup; Hyperwallet, a service that enables payouts to ride-share drivers and others; and Simility, which makes fraud-protection tools.
Credit Suisse analyst Paul Condra recently wrote positively about the purchase of Jetlore, which he sees as “the start of a bigger move to enhance [PayPal’s] marketing capabilities with a unique opportunity to serve online SMBs,” or small- and medium-size businesses. Condra has an outperform rating on PayPal’s stock and a $93 price target.
The latest deals will be a focus during PayPal’s earnings conference call not because of their immediate impact on the company’s financials, but rather for what executives have to say about how they’re expected to fit in to the broader PayPal road map. Analysts might also press the company about its overall acquisition strategy. Chief Executive Dan Schulman recently said that the company was prepared to spend up to $3 billion annually on acquisitions.
Read more: Why PayPal is paying $400 million for Hyperwallet
After the Hyperwallet deal announcement, MarketWatch chatted with Chief Operating Officer Bill Ready, who maintained that the company is taking a “thoughtful approach” to analyzing potential deals and pulling the trigger if they’re a fit.
“We never feel like we have to buy, but when we see places where we can accelerate offerings more rapidly than if we were building on our own and the company fits nicely, we have great balance sheet that allows us to take action,” he said.
That balance sheet was recently bolstered by PayPal’s sale of its credit-receivables portfolio to Synchrony Financial, an arrangement that shifted the loans off PayPal’s balance sheet and closed in early July.
What to expectEarnings: PayPal guided for adjusted earnings of 54 cent to 56 cents a share for the quarter. Analysts surveyed by FactSet expect PayPal to report 56 cents in adjusted earnings per share for the June-ended quarter, up from 43 cents a year earlier. On Estimize, a platform that crowd sources estimates from hedge funds, academics, and others, the average projection also calls for 56 cents.
PayPal has beaten FactSet’s earnings figure in every quarter since the company spun out from eBay Inc. EBAY, -1.70% in 2015.
Revenue: PayPal’s forecast calls for $3.78 billion to $3.83 billion in sales. The FactSet consensus projects $3.8 billion in revenue for the quarter, while the Estimize consensus calls for $3.9 billion. A year ago, PayPal reported revenue of $3.1 billion.
Stock movement: Shares have gained following seven of the company’s last 10 earnings reports. They’re up 54% over the past 12 months, while the S&P 500 SPX, +0.10% has gained 14%. Of the 44 analysts tracked by FactSet who cover PayPal, 33 rate the stock a buy, 10 rate it a hold, and one rates it a sell. The average price target on PayPal’s stock is $90.79, 3.5% above current levels.
What else to watch forPayPal has recently grown more aggressive with its efforts to monetize the popular Venmo peer-to-peer service.
The company continues to bring new merchants on board for Pay with Venmo, an initiative that allows Venmo users to pay with their balances or other means for e-commerce offerings. Newly announced “smart” button technology, which detects, among other things, whether a shopper is a Venmo user so it can show him or her the Pay with Venmo button, should accelerate merchant adoption.
Read more: PayPal, pioneer of checkout buttons, now wants to lessen the load
Other Venmo monetization efforts include a newly announced physical debit card, similar to the one that Square offers users of its Cash app. Both the debit card and the smart buttons are too fresh to have an impact on the latest quarterly numbers, but investors will nonetheless be looking for an update on the progress of Venmo’s monetization.
PayPal said at its May investor day that 11% of monthly active users engaged in a monetized experience between January and April, so Wall Street will want to see if that number has increased, especially amid all the new efforts. Instinet analyst Dan Dolev recently predicted that Square is monetizing “well over” a third of all Square Cash transactions. That implies room for PayPal’s Venmo to show considerable growth on the metric over time.
Don’t miss: PayPal’s tech chief says AI will transform the payments experience
Moving away from Venmo, PayPal’s “Consumer Choice” efforts will also be of interest, though the company has shown through its recent quarterly reports that the increased flexibility brought on by Choice hasn’t negatively impacted financials.
“Choice” refers to PayPal’s efforts to attract more users and drive greater engagement among current users by making it easier for people to sign up for accounts using their preferred payment method and switch among various funding methods for different types of purchases. The concern a few quarters back was that Choice would drive more people to use credit or debit cards to fund PayPal transactions, rather than bank accounts. Bank-account funding, also known as ACH funding, is better for the company’s margins.
PayPal hasn’t suffered as a result of Choice, analysts and investors may want an update on where things stand. Credit Suisse’s Condra recently wrote that just over half of all PayPal transactions might be done via ACH. That would be an impressive figure for the company given that linking up a bank account is generally viewed to be more annoying for consumers than just linking up a card.
