Image Shown: A snapshot of PayPal's first-quarter performance. Image Source: PayPal.

By Brian Nelson, CFA

On May 5, PayPal Holdings (PYPL), which is included as a highly-weighted idea in the Best Ideas Newsletter portfolio, reported fantastic first-quarter 2021 earnings. Revenue grew ~31% on a year-over-year basis in the quarter, helping to drive non-GAAP earnings per share to $1.22, up 84% from the $0.66 registered in the year-ago period. Total payment volume leapt ~50%, and the company added ~14.5 million net new active accounts in the period.

PayPal raised its guidance for revenue, earnings, total payment volume and net new active accounts for 2021. Revenue is now expected to advance ~20% at present currency exchange rates, while non-GAAP earnings per share is set to soar ~21%, to $4.70 per share in the year (up from prior guidance calling for ~17% growth). Total payment volume is expected to leap ~30% at current exchange rates, while management expects to add 52-55 million net new accounts during the year.

Here’s what CEO Dan Schulman had to say about the performance:

Our strong first quarter results demonstrate sustained momentum in our business as the world shifts into the digital economy. Our addressable market continues to grow as we launch new products and services for our 392 million active accounts.

PayPal remains one of our favorite names in fintech, and its recent quarterly report and strong outlook for the remainder of 2021 only serve to reinforce this notion and the stock’s overweight position in the Best Ideas Newsletter portfolio. Based on the momentum behind first-quarter results, we believe that its guidance for 2021 may be a bit conservative, and there is an increased likelihood PayPal may raise its guidance yet again as the year progresses.

The company remains cash-rich, too. During the first quarter of 2021, PayPal’s operating cash flow jumped 24%, to $1.76 billion, while free cash flow grew 27%, to $1.54 billion. The payment giant’s balance sheet is also in fantastic shape. It held $19.1 billion in cash and cash equivalents at the end of March and just $8.9 billion in debt, good enough for a solid net cash position and excellent financial flexibility to buy back shares.

Concluding Thoughts

PayPal’s fundamentals continue to move in the right direction, and we liked its first-quarter report and outlook for the remainder of 2021. The high end of our fair value estimate range for PayPal is $334 per share, and we still view the company as one of the best ideas on the market today.

Tickerized for PYPL, SQ, COIN, FIS, BILL, GPN, FISV, GBTC

-----

Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.

Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, and IWM. Brian Nelson's household owns shares in HON, DIS, HAS. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.