The payment sector is undergoing rapid change, with non-cash disrupting existing systems. The transformation has created a competitive battlefield between already established companies in the sector vying for a leading position in the future of cashless payments.
Two of the largest players in the field, PayPal Holdings (NASDAQ 🙂 and Square (NYSE :), have recently released their respective first quarter earnings figures. The market reaction to the results varied widely – PayPal shares gained popularity while the shares of Square were again demolished.
Here are the most important dubious episodes of that income:
PayPal: Riding The Venmo Growth Engine
PayPal continued the immense growth rate in the first three months of 2019, with analysts and investors being particularly encouraged by incredible growth rates for the popular peer-to-peer mobile payment app Venmo.
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More than 40 million people used Venmo for at least one transaction in the last 12 months, the company said on April 24. It was the first time that PayPal announced user numbers for the payment app.
The total payment volume (TPV), an accurate metric for Venmo, grew 73% year-on-year to $ 21 billion in the first quarter. PayPal also said that Venmo is on schedule to make $ 100 billion in payment volume this year.
"Venmo continues its important momentum," said PayPal CEO Dan Schulman about the call after the win with analysts. "As user growth continues to accelerate, merchants are increasingly opting for Venmo to attract a valuable and committed consumer base."
Venmo has announced partnerships with Uber (NYSE :), Grubhub (NYSE 🙂 and Chipotle (NYSE :), among others. These partnerships are an important source of income for the app. Schulman said Venmo is on track to generate $ 300 million in revenue this year.
BTIG analyst Mark Palmer raised his price target on PayPal shares to $ 130 from $ 114 in the wake of the Q1 report, citing the opportunities associated with Venmo's ongoing monetization and the ability to use PayPal user file with a fast clip.
Palmer is also optimistic about the company's ability to keep increasing user engagement, that is, the number of transactions that users complete each year, while also attracting new users to the PayPal ecosystem. PayPal's share, which ended on Tuesday at $ 108.95, has so far reached 30% this year, giving the Palo Alto-based company a market capitalization of $ 128 billion
From a technical perspective, PYPL shares trade far above their 50-day moving average (DMA), a promising sign that buyers are in control. At the current level, the stock is only 4% below the highest value of $ 113.69 ever hit on May 1.
Square: Continuation of transaction processing
Square bulls were hit when the mobile payment processor was weaker than expected gross payment volume (GPV) and lower than expected for the second quarter after markets were closed on May 1.
GPV, or the value of all transactions processed on its platform, amounted to $ 22.6 billion, among the $ 22.8 billion analysts expected. Despite a growth of 26.7% compared to the same quarter a year earlier, GPV's growth slowed down from 28.3% in the previous quarter and 29.6% for the full year 2018.
Regarding the delay, Bernstein analyst Harshita Rawat wrote: "[It] raises questions about the ability of Square to meaningfully surpass the market in a fiercely competitive merchant acquiring space."
Signs of a continuing slowdown in overall revenue growth are another cause for concern. Square's adjusted revenue amounted to $ 489 million, an increase of 59% on an annual basis, slowing from revenue growth of 64% in the previous quarter.
And to add to the challenges, investors were also not impressed with the company's earnings outlook for the second quarter. Square predicts that earnings per share in Q2 will be between 14 cents and 16 cents on sales between $ 545 million and $ 555 million – both lower than expected.
BTIG & Palmer reiterated his sales recommendation at Square after the company's disappointing earnings and guidance update. He points to the challenges of the payment processor in increasing his overall addressable market.
"We believe that the slowdown of SQ's GPV and the unusual quarterly guidance may mean that competition between larger traders may be a headwind for the company," he wrote in a note of May 2.
In a bearish development that is likely to signal more losses in the coming weeks, shares of San Francisco-based Square, run by Twitter CEO Jack Dorsey, are struggling under their 50-DMA. It closed at $ 68.42 yesterday, about 33% off the record high of $ 101.15 on October 1.
