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PayPal (PYPL) Q3 earnings preview: Investments, volume to influence results

After recording double-digit earnings and revenue growth in the second quarter, PayPal Holdings (NASDAQ: PYPL) lowered its full-year revenue guidance in July, citing pricing challenges and currency-related headwinds. When the digital payments platform releases third-quarter numbers Wednesday after the normal trading hours, analysts will be looking for mixed results.

PayPal (PYPL) reports mixed bag of results for Q2; provides dismal revenue outlook

Earnings are seen dropping 8.6% annually to $0.53 per share on revenues of $4.35 billion, which represents an 18% increase. The chances of the bottom-line surpassing the estimates are high, if the past performance is any indication.

Pre-tax Loss

Meanwhile, a recent statement from PayPal said it expects a pre-tax loss of $228 million for the third quarter. That is in connection with the strategic investments it made during the period, especially in Uber Technologies (UBER) and MercadoLibre, which will have a negative impact on earnings. Nevertheless, the strong product portfolio and user engagement gives the company an edge over its rivals, which is expected to translate into revenue growth this time.

Also see: American Express tops Q3 earnings view

The other positive factors are international expansion and the successful efforts to contain transaction losses through effective risk management, besides growth initiatives with focus on strategic asset acquisition. However, unfavorable foreign exchange rates remain a cause for concern.

Mixed Q2

In the second quarter, payment volumes in the merchant services segment rose by a third, lifting total volumes to about $172 billion even as the company added about nine million new users. Consequently, total revenues climbed 12% annually to $4.3 billion, but fell short of expectations, and adjusted earnings rose 47% $0.86 per share.

Payment service providers continue to witness steady improvement in business, consistent with the positive economic environment. Last week, American Express (AXP) said its third-quarter earnings grew in double digits to $2.08 per share as revenues rose to about $11 billion helped by an increase in cardmember spending.

GoPay Deal

In a sign that the market was not enthused by PayPal’s recent announcement on the acquisition of China-based GoPay, the stock traded lower this month.

Related: PayPal Q2 2019 Earnings Conference Call Transcript

The stock, which is yet to fully recover from the downtrend that followed the second-quarter results, trades slightly above the $100-mark ahead of the earnings release. The shares gained 16% since the beginning of the year.

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