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PayPal Estimates $228m Loss in Q3 2019

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PayPal (PYPL) stock has been dipping since Monday. On October 7, the stock was priced at $102.03 towards the end of the trading session. The stock dropped down to $99.33 on Tuesday, October 8. Although PayPal had recently announced it’s buying Chinese company GoPay, the stock did not see a lot of reaction to the news. One of the reasons why the stock price fell on Tuesday could be because of the 8-K filed with the SEC.

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There was an upward movement on Wednesday. The stock crossed the $100 mark only to close at $99.88 towards the end of the day. PayPal was on a rebound from the start of trading hours on Thursday. The stock crossed the $100 mark within the first five minutes of the market open. Also, the stock is still trading just above $100 on Thursday midday.

PayPal’s earnings and diluted EPS

PayPal filed the 8-K with the SEC on October 8, 2019. The material disclosure with the SEC had a summary of earnings estimates days before the actual release of its third-quarter earnings. The digital payment service provider said that the earnings release for the third quarter of 2019 could take a hit. Per PayPal estimates, the quarterly earnings report could carry a loss of approximately $228 million.

The company also expects an after-tax loss of $177 million. PayPal management is blaming the negative earnings on declining strategic investments. The diluted earnings per share could see an impact of -$0.15 per share.

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In addition, the company had already recognized unrealized earnings of the third quarter of 2019 in its earnings release for the last quarter. The unrealized gain of the third quarter of 2019, recognized in the last quarter was expected to have an impact of $0.03 on the diluted EPS. The recognition of unearned revenue in the second quarter was mentioned in the 2019 financial guidance.

PayPal sees fall in the value of strategic investments

In the 8-K filing on October 8, PayPal also disclosed that some of its strategic investments dropped in value. This is a primary contributor to the negative earnings estimates. Also, PayPal invested $500 million in Uber Technologies. PayPal estimates a decline in the investment to the tune of 34%.

Another strategic investment in the second quarter was in MercadoLibre (MELI). MercadoLibre is an Argentian e-commerce company. PayPal made an investment of $750 million in the Latin American company.

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PayPal buys Chinese GoPay

On September 30, it was announced that PayPal bought a 70% stake in GoPay. GoPay is a Chinese digital payment services company. It has a vast customer base in China and other Southeast Asian countries. The value of the acquisition is not yet made public.

GoPay made an official announcement about the acquisition by the PayPal subsidiary in Shanghai – Yinbaobao Information Technology (Shanghai) Co. Ltd. With the acquisition, PayPal would be the first overseas company to enter the payment platform in China. This could be a big boost to PayPal in the near future.

Conclusion

During the year, PYPL stock was on a roll. On a YTD basis, PYPL consistently outperformed S&P 500 index In the month of July 2019, the stock crossed a total return of 41%. By contrast, the S&P 500 total return got half the returns of PayPal. Also, PayPal launched four debt series aggregating to $5 billion on September 26, 2019.

The Chinese venture has already received the approval of the People’s Bank of China. With a vast market in its reach, PayPal could soon recover from the current earnings blow. The company expects to release its third-quarter 2019 earnings on Thursday, October 24. Also, the earnings release will be after the market closes that day.

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