Wall Street is abuzz with the big earnings coming out on Thursday, but there already have been some earthshaking results that have come out this week. On Wednesday after the markets closed, eBay Inc. (NASDAQ: EBAY) and PayPal Holdings Inc. (NASDAQ: PYPL) both reported earnings. Even though these stocks were once one and the same, they went in opposite directions after their reports.
The two operations were joined at the hip, and eBay used PayPal as its nontraditional way to spend money at the online auction site. In July 2015, eBay spun off PayPal into a new public company, but many people expected the core relationship would go on indefinitely.
What sent PayPal tumbling was eBay’s announcement that it would use a new company as its primary payment processor. eBay management announced:
eBay intends to further improve its customer experience by intermediating payments on its Marketplace platform. In doing so, eBay will manage the payments flow, simplifying the end-to-end experience for buyers and sellers. eBay has signed an agreement with Adyen, a leading global payments processor, to become its primary payments processing partner. PayPal, a long-time eBay partner, will be a payments option at checkout for eBay buyers. The transition to full payments intermediation will be a multi-year journey, and eBay will move as quickly as possible to complete this process within the parameters of the Operating Agreement with PayPal, which remains in place through mid-2020.
Aside from this, 24/7 Wall St. has included some brief highlights from the earnings report, as well as what analysts are saying about each of these stocks after the fact.
eBay reported earnings per share (EPS) of $0.59 on revenues of $2.61 billion. The consensus estimates had called for $0.59 in EPS and $2.61 billion in revenue.
Merrill Lynch raised eBay’s price objective to $52 from $44 while maintaining its Buy rating. The firm sees growth opportunities in gross merchandise value, foreign exchange, its newer payments initiatives and stock buybacks.
Credit Suisse reiterated an Outperform rating and raised its price target to $51 from $46. Its note said:
eBay will begin testing its payments feature in the U.S. in 2H18. The bottom line is that the acceleration thesis continues to play out, aggressive share repurchases are shrinking the float and the payments opportunity now represents material option value.
A few other analysts weighted in on eBay:
- Barclays raised its price target to $49 from $42.
- Benchmark has a Buy rating and raised its price target to $53 from $45.
- BMO has an Outperform rating and raised its price target from $45 to $55.
- Canaccord Genuity raised the price target to $43 from $40.
- Cowen also raised its price target to $43 from $40.
- D.A. Davidson raised its price target to $55 from $45.
- Jefferies raised its price target to $45 from $38.
- JPMorgan has a Neutral rating and raised its price target to $45 from $38.
- Mizuho has an Underperform rating and raised its target to $40 from $33.
- RBC upgraded it to Outperform from Sector Perform and raised its target to $51 from $39.
- Wedbush raised the price target to $46 from $40.
As for PayPal, it reported that it had EPS of $0.55 and $3.74 billion in revenue, which compared to consensus estimates of $0.52 per share and $3.63 billion.
Merrill Lynch maintained a Buy rating, but the price objective of $88 was barely above the $85.32 prior close. While it sees PayPal shares lower on Thursday and potentially impacted for some time, the firm ultimately would view pullbacks as a very attractive buying opportunity. Longer term it sees PayPal delivering upside to consensus estimates for the foreseeable future with its current business momentum.
Credit Suisse maintained its Outperform rating on PayPal, and it has a $91 price target. The firm maintained that the drop is a buying opportunity after a big overreaction. In its report, Credit Suisse detailed:
Incremental EPS headwind assuming PayPal loses all the non-branded eBay volume in 2021 (25% of the total) and ultimately maintains 50% of the remaining branded volume. Management stressed it had always anticipated this outcome in its medium term guidance and longer term outlook, and noted a potential margin benefit from shedding eBay’s non-branded processing and disproportionate losses and costs. Further, this deal removes the last overhang on the stock and introduces the potential positive catalyst for PayPal to win partnerships from competing marketplaces (i.e., Amazon).
A few other analysts commented on PayPal after earnings as well:
- Susquehanna maintained its Positive rating and raised its target to $87 from $85.
- BTIG downgraded PayPal to a Neutral rating from Buy.
- Compass Point has a Neutral rating and cut its price target to $70 from $75.
- Instinet maintained its Buy rating and raised its target to $85 from $82.
- Mizuho maintained a Neutral rating and cut its price from $75 to $70.
- Morgan Stanley raised its price target from $84 to $88.
- Stifel reiterated a Hold rating but lifted its target to $79 from $77.
Shares of eBay were last seen up 14% at $46.39, with a consensus analyst price target of $41.13 and a 52-week trading range of $31.80 to $46.94.
PayPal was trading down about 6% to $79.94 a share. The 52-week range is $39.02 to $86.32.
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