PayPal, Square Expect Boost in Q2
Wall Street analysts looked past a surprisingly shaky first quarter for payment processors PayPal Holdings Inc and Square Inc. It was hoping that the shift towards more online buying will see their businesses and stocks surge this year.
Square reported a loss in Q1 on Wednesday, as the coronavirus pandemic shut down parts of the global retail industry. Operating expenses rose, while PayPal’s profit plunged 87.4% after it boosted credit loss reserves.
The decline tied in with the record drop in U.S. retail sales in March. This indicated shoppers cut back on non-discretionary spending.
Analysts, however, bought into PYPL’s predictions that the second quarter would be far brighter. More consumers get back to work and the boost the crisis has given to online sellers beds down.
The company reported unprecedented use of its platform over the past month. This added a record 7.4 million new customers for April.
Square is best known for its signature small white credit card readers that are plugged into smartphones. It said it had seen improving payment volume growth rates since mid-April.
PayPal’s Chief Executive Officer Daniel Schulman said on May 1 that they had their largest single day of transactions in history. It was larger than last year’s transactions on Black Friday or Cyber Monday.
Paypal, the Greatest Beneficiary as Ecommerce Accelerates
At least 11 brokerages raised their price target on PYPL following these results. Eight brokerages did the same on Square.
Square’s stock slid 2.1% in premarket stock trading on Thursday. This reflected the poor first quarter while shares in PayPal popped up by10%.
Evercore analysts said changes in consumer shopping behavior is tied to severe COVID-19 related health concerns. The shift to e-commerce is accelerating, making PYPL, a pure-play in e-commerce payments, the greatest beneficiary in our coverage universe.
Shopify Inc said on Wednesday that more people were shopping online as the virus outbreak kept them at home. Rival eBay Inc has also seen higher-than-usual demand.
Jeff Bezos, Amazon.com Inc’s founder and the world’s richest person, said they are not thinking small. This is a sign that the e-commerce company would invest heavily during the pandemic.
The world’s second-largest payment processor, Mastercard Inc, said last month that it expects consumer spending to gradually return to pre-COVID levels. This is as people start using their cards again on clothing and domestic travel.
Compass Point analysts said they expect e-commerce volumes will be insulated throughout the downturn. They expect consumer shifts to e-commerce in certain spending categories and will be durable post-downturn.
Stock market reports that PayPal and Square are eyeing a boost on their Q2 as e-commerce accelerates amid COVID-19 lockdowns.
