PayPal's First Earnings: What To Expect In Q3?

PayPal Holdings, Inc. (PYPL - Snapshot Report) will report its third-quarter fiscal 2015 earnings, its first quarterly results as an independently-traded company on Oct 28 after its split from eBay (EBAY - Analyst Report) on Jul 17. Let’s see how things are shaping up for this announcement.

Factors to Consider

PayPal Holdings, Inc. is a technology platform company. The company offers online payment solutions, which allow customers to pay and get paid, withdraw funds to their bank accounts and hold balances in their PayPal accounts in various currencies. Its payment platform includes PayPal, PayPal Credit, Venmo and Braintree products.

Post-split, PayPal is now able to focus on its core capabilities and operate with greater flexibility for success in the digital payments space. It is able to focus on positioning itself as a "full-service" payments associate for consumers and merchants, managing mobile transactions, credit purchases and customer loyalty rewards programs.

PayPal is already gearing up to sustain itself in the fast growing digital payments. Its foray into mobile payments with the Braintree acquisition and its One Touch system reflects the same. In fact, it recently acquired Xoom Corporation, a service for international money transfers, which will enable it to sell international transfers to its U.S. customer base of nearly 68 million by cross-selling Xoom’s services. It will also accelerate expansion of PayPal services into the overseas money transfers market.

However, intensifying competition in the payments -- especially mobile -- space can be a headwind for the company.

Earnings Whispers?

Our proven model does not conclusively show that PayPal will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: The Most Accurate estimate stands at 23 cents while the Zacks Consensus Estimate is pegged higher at 24 cents. This translates to a difference of –4.17%.

Zacks Rank: PayPal’s Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks to Consider

Here are some companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

• Facebook, Inc. (FB - Analyst Report), with Earnings ESP of +5.71% and a Zacks Rank #1 (Strong Buy)
• Agilent Technologies Inc. (A - Analyst Report), with Earnings ESP of +2.13% and a Zacks Rank #2 (Buy)
• CyberArk Software, Ltd. (CYBR - Snapshot Report), with Earnings ESP of +10.00% and a Zacks Rank #2