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How PayPal’s Bottom Line Is Trending

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Company on track to meet consensus EPS estimate

PayPal (PYPL) is expected to report its fourth-quarter earnings on January 17. For the third quarter, the company posted GAAP EPS of $0.36 and adjusted EPS of $0.58, up from adjusted EPS of $0.46 a year ago and above the consensus estimate at $0.54. It remains to be seen if PayPal can continue to beat consensus estimates.

At the time it released its third-quarter results in October, PayPal also provided an outlook for the fourth quarter. The company estimated its fourth-quarter adjusted EPS would be in the range of $0.65 to $0.67, which would put it on track to meet consensus estimates, which call for adjusted EPS of $0.67.

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Potential headwinds to the bottom line

While PayPal has typically beat consensus EPS estimates since splitting from eBay (EBAY) and going public in 2015, it’s worth noting that increasing spending in areas such as marketing and escalating competition in the digital payments market can create headwinds that can hit the company’s bottom line.

Operating expenses jumped more than 14%

PayPal’s operating expenses jumped 14.3% YoY to $3.2 billion in the third quarter. This rise has come on the back of the company boosting spending for marketing and product development programs as it expands into certain markets and fight the growing wave of competition.

Operating expenses jumped 55% YoY at Square (SQ) and increased 2.5% at Fiserv (FISV) in the third quarter. First Data (FDC) and Global Payments (GPN) cut their operating expenses by 42% and 27% YoY, respectively, in the third quarter.

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