PayPal’s Q3 Earnings: Will It Deliver Another Surprise Beat?

I expect PayPal (PYPL) to potentially beat earnings estimates when it reports results for the quarter ending September 2024. While the market anticipates a year-over-year decline in earnings with higher revenues, the real focus will be on how the actual results compare to these estimates. This comparison could significantly influence the stock’s short-term price movement.

If PayPal exceeds expectations in its earnings report (Paypal is projected to post quarterly earnings of $1.08 per share), which is expected on October 29, the stock could move higher; however, if the results fall short, the stock may decline to $75 which is the cloest support level. It’s worth assessing the likelihood of a positive EPS surprise, as management’s discussion of business conditions on the earnings call will impact both the stock’s immediate movement and future earnings expectations.

Zacks Consensus Estimate

As a technology platform and digital payments company, PayPal is projected to post quarterly earnings of $1.08 per share, representing a year-over-year decline of 16.9%. Revenues are anticipated to be $7.86 billion, which would be a 5.9% increase from the same quarter last year.

Estimate Revisions Trend

Over the past 30 days, the consensus EPS estimate for PayPal has been revised upward by 1.22%, indicating that analysts have reassessed their initial expectations. Investors should keep in mind that individual analysts’ revisions may not always align with the overall consensus.

Earnings Whisper

Pre-earnings estimate revisions provide insights into expected business conditions. This approach is central to the Zacks Earnings ESP (Expected Surprise Prediction) model, which compares the Most Accurate Estimate to the consensus estimate for the quarter. The rationale is that analysts revising their estimates right before the earnings release have the latest information, potentially making these estimates more accurate.

A positive or negative Earnings ESP reading theoretically signals the likely deviation of actual earnings from the consensus estimate. However, the model’s predictive power is more significant for positive ESP readings, especially when paired with a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold). According to research, stocks with this combination yield a positive surprise nearly 70% of the time, with a strong Zacks Rank enhancing ESP’s predictive power.

It’s important to note that a negative Earnings ESP reading doesn’t necessarily indicate an earnings miss. The model’s research shows that predicting an earnings beat is challenging for stocks with negative ESP readings or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How Have the Numbers Shaped Up for PayPal?

For PayPal, the Most Accurate Estimate is higher than the consensus estimate, indicating that analysts have recently become bullish on the company’s earnings potential. This has resulted in a +1.92% Earnings ESP.

Currently, PayPal holds a Zacks Rank of #3, suggesting a solid chance of beating the consensus EPS estimate.

Does Earnings Surprise History Hold Any Clue?

Analysts often consider how well a company has matched consensus estimates in the past when forecasting future earnings. This makes reviewing PayPal’s surprise history valuable for gauging its potential impact on the upcoming results.

For the last reported quarter, PayPal’s expected earnings were $0.96 per share, but it delivered $1.19, a 23.96% surprise. Over the past four quarters, the company has consistently beaten consensus EPS estimates.

Bottom Line

While an earnings beat or miss could influence PayPal’s stock movement, other factors, such as management’s outlook and broader market trends, may also play a role. Sometimes stocks fall despite beating estimates due to other disappointing factors, while unforeseen catalysts can drive stocks higher despite misses.

However, betting on stocks that are likely to beat earnings expectations can increase the odds of success. This is why it’s helpful to consider both Earnings ESP and Zacks Rank ahead of a company’s quarterly release. Using tools like the Earnings ESP Filter can help uncover the best stocks to buy or sell before earnings announcements.

PayPal appears to be a strong earnings beat candidate, but investors should also be aware of other factors that could influence their decision to buy or hold the stock before the earnings release.

An Industry Player’s Expected Results

Another stock from the Zacks Internet — Software industry, F5 Networks (FFIV), is expected to post earnings of $3.45 per share for the quarter ending September 2024, a -1.4% year-over-year change. Its revenue is projected to be $729.6 million, up 3.2% from the prior year.

Over the past 30 days, the consensus EPS estimate for F5 has been revised up by 0.4%. However, a lower Most Accurate Estimate has resulted in an Earnings ESP of -0.65%. This, combined with a Zacks Rank of #1 (Strong Buy), makes it harder to predict an earnings beat for F5. Nevertheless, the company has beaten consensus EPS estimates in each of the last four quarters.

In conclusion, PayPal (PYPL) appears well-positioned to deliver an earnings beat for Q3 2024, driven by recent positive revisions in EPS estimates and a solid Earnings ESP of +1.92%. While the stock currently holds a Zacks Rank of #3 (Hold), its consistent track record of surpassing consensus estimates in the last four quarters adds to the optimism. However, it’s important to note that actual stock movement will depend not only on the earnings results but also on management’s commentary and broader market conditions. An earnings beat could boost the stock, but unforeseen factors could still impact its performance. Therefore, while PayPal looks like a compelling earnings-beat candidate, investors should consider the broader context before making a decision.