Banking, finance, and taxes
Why the PayPal and Visa Partnership Is a Great Idea
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PayPal Holdings Inc. (NASDAQ: PYPL) and Visa Inc. (NYSE: V) each reported earnings after the markets closed on Thursday, and at the same time announced a somewhat surprising partnership. Although investors were not entirely thrilled with PayPal’s report as a whole, the company does stand to benefit greatly from Visa’s backing. These companies can look forward to competing against Apple Pay and Google Wallet in the future.
Seemingly news from these two companies has overshadowed the American Express Co. (NYSE: AXP) earnings report that came out earlier this week. Amex is working to expand on its own, but the fallout from Costco is still very real.
PayPal said that it had $0.36 in earnings per share (EPS) on $2.65 billion in revenues. The consensus estimates had called for $0.30 in EPS on revenue of $2.59 billion.
In terms of guidance for the third quarter, PayPal now expects revenue to grow by 16% to 18% at current spot rates and 19% to 21% on a neutral foreign exchange basis, to a range of $2.62 billion to $2.67 billion. At the same time the company expects to have EPS in the range of $0.33 to $0.35. The consensus estimates are EPS of $0.36 and $2.6 billion in revenue for the third quarter.
Visa posted $0.69 in EPS on $3.6 billion in revenue, versus consensus estimates that called for $0.66 in EPS on $3.65 billion in revenue.
Both PayPal and Visa announced a strategic partnership to expand their long-standing relationship that will result in an improved and more seamless shopping experience and greater choice in how consumers pay.
The online payment company will also gain access to Visa’s tokenization services, starting in the United States, for in-store PayPal transactions. This will expand acceptance for PayPal’s digital wallet to all physical retail locations where Visa contactless transactions are enabled. The partnership’s benefits will include greater accessibility and volumes for Visa payment instruments in the PayPal digital wallet.
PayPal also will ensure that data provided to issuers and their cardholders for Visa-funded transactions will be consistent with the information that each receives with a traditional Visa card transaction, providing greater transparency and enhancing payment system security.
Despite this deal not being immediately accretive, PayPal and Visa are opening up to a whole new cardless system of payments, where they will compete directly with Apple and Alphabet. PayPal only has a market cap of about $45 billion, which pales in comparison to these other giants, but with Visa’s financial network and backing this partnership could gobble up market share in this space.
Dan Schulman, president and chief executive of PayPal, commented:
We have a clear mission at PayPal. We want to democratize financial services and become an everyday, essential service for underserved consumers. We want to use our platform and services to enable merchants to fully capitalize on the move to mobile and digital commerce. Our strong financial performance is one sign of the tangible and consistent progress we’ve made towards achieving these goals. Our agreement with Visa enhances our capabilities, offers the potential to establish new contexts for our consumers and merchants, and lays the foundation for additional partnerships.
Shares of PayPal were trading down more than 7% at $37.07 of Friday, with a consensus analyst price target of $43.91 and a 52-week trading range of $30.00 to $41.75.
Visa shares were barely up to $78.92. The consensus price target is $89.30, and the 52-week range is $60.00 to $81.73.
Amex was last seen at $63.81, within a 52-week range of $50.27 to $81.66. Its consensus price target is $67.82.
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