PayPal (PYPL -0.61%) shares fell after a mixed third-quarter earnings report in early November and the stock has also been affected by volatility that's been afflicting tech stocks.
In this segment of Backstage Pass, recorded on Nov. 10, Fool contributors Rachel Warren, Connor Allen, and Taylor Carmichael discuss a announcement by PayPal and weigh in on the stock's post-earnings performance.
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Rachel Warren: PayPal announced on Monday that it would be partnering with Amazon to allow customers to pay on Amazon.com and the Amazon mobile app using Venmo as of 2022. In the press release announcing the partnership, PayPal said that a recent Venmo behavior study revealed that 65% of Venmo users said they increased their online purchasing behaviors amid the pandemic and 47% are interested in paying with Venmo when checking out with merchants. This sounds like a fantastic partnership. CNBC reported on Tuesday though that PayPal was having its worst trading day in 20 months with shares dropping around 12% that day.
Now to be fair this seems to be less due to the partnership announced between Amazon and PayPal, and more to do with PayPal's recently released third-quarter earnings, which fell noticeably below Wall Street estimates.
Here's my question. What do you guys think about this deal? Both PayPal and Amazon recently released mixed quarterly earnings reports. Do you think PayPal or Amazon is a better stock to buy after this news? Connor, why don't you take this one first?
Connor Allen: Yes. I got to say, I'm extremely excited for PayPal, and PayPal's the company out of this deal or this partnership that I'm really excited about. I know Amazon could benefit as well. There's been some studies about people that actually wouldn't purchase something if PayPal wasn't offered.
If it's not offered in that purchase or something like that, they may not actually buy it. But I think overall this is going to be bigger news for PayPal than it is Amazon. I believe their contractual agreement with eBay just ended recently, which is what allowed them to do this partnership along with a bunch of other partnerships that they're doing. Another one is United Airlines.
They're actually allowed to do in-flight purchases using PayPal or using Venmo on United Airlines flight. So that's super cool and I think there's a lot of opportunity for PayPal in the future.
About PayPal's quarter that everyone freaked out about, I think that they had a good quarter. I think they underestimated the impact of eBay moving away from PayPal a little bit, and that's what their management said. Obviously they missed on revenue by a slight margin and that caused their stock price to drop at 12%.
But it's something that I saw Jason Moser for those who don't know, he tweeted yesterday and he said that, "This is a business that will have $1.2 trillion of transaction volume next year."
You're looking at a company that's obviously a huge player in the fintech industry. I think it is the player in the fintech industry personally. All that transaction volume along with monetizing Venmo is going to be huge for this business.
I think what I like to say is that PayPal fell victim to this theme of earnings season, which is what I like to call overreaction. It seems like there is a lot of overreaction going on this earnings season.
Rachel Warren: Yeah absolutely. What about you Taylor, what do you think? Oh, Taylor, I think you're muted.
Taylor Carmichael: Did it again. I do it every time.
Rachel Warren: All good, no worries.
Taylor Carmichael: I think Connor's right. I think he's totally right. It was an overreaction. I don't know why people are surprised. I expected bad numbers from PayPal because Square had bad numbers and so much of PayPal's revenues now are coming from crypto trading. Crypto trading has been big for them, it was big in the fourth quarter, big in the first quarter, bigger in the second quarter, and we knew it was down in the third quarter.
I wasn't surprised at all. I was expecting it really, but I guess the market was just some people are, watch the quarter and buy and sell. I never do that. I look at the business not so much what happens on the quarter.