Fly Intel: What to watch in PayPal earnings report

PayPal (PYPL) is scheduled to report results of its fourth fiscal quarter after market close on January 29, with a conference call scheduled for 5:00 pm EDT. What to watch for: 1. OUTLOOK: During the company's last earnings call, PayPal said it sees fourth quarter earnings per share of 81c-83c and revenue between $4.89B-$4.95B. The company also sees 2019 earnings per share of $3.06-$3.08, and 2019 revenue between $17.70B-$17.76B. Additionally, PayPal said it expects fiscal year 2020 adjusted earnings per share growth of roughly 17%-18%, fiscal year 2020 revenue growth of about 17%, and fiscal year 2020 TPV growth in the mid-20% range. The company added that it sees "at least" 50 basis points of operating margin expansion in fiscal year 2020. According to a regulatory filing earlier this month, PayPal said it expects to report a pre-tax gain of $38M, or $29M on an after-tax basis, on the company's strategic investments in the quarter ended December 31, 2019. The associated impact on earnings per diluted share for the quarter ended December 31, 2019 is estimated to be a positive 2c per share. The company's full year and fourth quarter 2019 non-GAAP earnings per diluted share guidance announced on October 23, 2019 did not included any expectation of unrealized gains or losses from PayPal's strategic investments portfolio in the fourth quarter of 2019. The company expects to report a pre-tax gain of $208M, or $164M on an after-tax basis, on the company's strategic investments for the year ended December 31, 2019. The associated impact on earnings per diluted share for the year ended December 31, 2019 is estimated to be a positive 14c per share. The company reported a pre-tax gain of $87M, or $67M on an after-tax basis, on the company's strategic investments for the year ended December 31, 2018. The associated impact on earnings per diluted share for the year ended December 31, 2018 was a positive 6c per share. 2. HONEY SCIENCE ACQUISITION: Back in November, PayPal announced that it has agreed to acquire Honey Science, a technology platform for shopping and rewards, for approximately $4B. Honey co-founders George Ruan and Ryan Hudson will continue to lead the Honey team as part of PayPal's global consumer product and technology organization, reporting to Senior Vice President John Kunze. Honey was profitable on a net income basis in 2018. The acquisition is expected to be accretive to PayPal's non-GAAP earnings per share in 2021. According to a report by Bloomberg's Julie Verhage and Spencer Soper this month, Executives at PayPal were surprised by Amazon's (AMZN) security warning about Honey and are communicating with the e-commerce giant to resolve it. Just before Christmas, banners started popping up on Amazon that told shoppers to be cautious when using Honey, calling it "a security risk" and "to keep your data private and secure, uninstall this extension immediately," Verhage and Soper noted. 3. POSITIVE REVISIONS DUE TO TAILWINDS: Bernstein analyst Harshita Rawat upgraded PayPal to Outperform from Market Perform on January 7, with a $130 price target. The analyst cited the likelihood of 2020 positive revisions due to tailwinds from partnerships, pricing, Honey deal and Venmo monetization. Additionally, Rawat said he expects a reset of expectations and sees long-term optionality for growth acceleration from partnerships, potential offline-online convergence meaningfully expanding TAM, and better execution on areas that are either under-monetized or under-invested.