Recently spun-off payment processor PayPal Holdings (NASDAQ:PYPL) is set to report its third quarter results after the market closes on Oct. 28, and it'll be the first time the company's filing its earnings report separate from eBay's oversight.
Investors will want to see PayPal's active customer numbers increase, as well as an uptick in the number of transactions per account, and also see if the company can boost the number of mobile transactions.
What analysts want
Analysts are estimating revenue for the third quarter to come in at $2.28 billion, which would be just slightly under PayPal's $2.29 billion in the previous quarter.
Analysts are expecting earnings of around $0.29 per share, which would be an increase over PayPal's Q2 GAAP diluted earnings per share of $0.25.
Key areas to watch
Even with PayPal's market cap of $42 billion, the company has experienced huge growth. In the second quarter, PayPal had 169 million active accounts, which is up 11% year over year, and about 10 million merchant accounts. The company's adding about 3 million to 5 million new active accounts each quarter, and investors should be looking to see if there's any changes in these numbers. While PayPal faces a lot of competition from Apple, Google, Samsung, and other smaller players in the payment space, the company is still the go-to digital wallet for many users and merchants, and PayPal should be able to build on this lead.
Aside from active users, investors will want to see an increase in the amount of transactions for each account as well. PayPal managed to boost those transactions by 11% in the second quarter, up to 26 per account. The more transactions per account, the more PayPal's users are tapping into the platform -- and that eventually translates to more money for the company.
Which leads us to PayPal's total payment volume (TPV). As you can see from the chart below, PayPal's managed to steadily increase TPV over the past five years and the third quarter should follow suit. In the second quarter, PayPal managed to increase TPV by 19% year over year. Increasing total payment volume indicates that users are spending more money on the company's payment platform.
And last, but not least, investors should be on the lookout for more mobile payment transactions in the third quarter. In Q2, PayPal managed to increase these payments by 42% year over year and their importance can't be overstated. PayPal's building out a full digital wallet platform -- and mobile payments are at the foundation. IDC estimates that by 2020 the total value of payments over mobile networks will reach $4 trillion. As more consumers use their mobile devices to make payments, investors need to see PayPal's mobile payment transactions continue to grow quarter after quarter.
As PayPal continues to grow, payments to and from international users and merchants will become increasingly important. Most of PayPal's revenue comes from the transaction fees it charges merchants, and the company charges more per transaction if merchants and consumers are in different countries. Any news on expanding international accounts should be viewed as a very good thing for the company, as about 50% of PayPal's revenue currently comes from international transactions.
Investors should look for any mention of the company's new partnership with Macy's as well. Adding such a huge brick-and-mortar client could significantly boost transactions for the company. Macy's will allow PayPal payments online, via mobile, and in the checkout line, so any new information as to how this partnership is already paying off will be welcomed news.
While PayPal's been around for more than a decade, the company's recent spinoff from eBay is finally allowing this payment processor to come into its own. The company is already a leader in the payment space, and recent acquisitions, strong user growth, and international expansion should help keep PayPal ahead of the pack.
Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, eBay, and PayPal Holdings. The Motley Fool recommends Xoom. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.