PayPal (NASDAQ: PYPL) Stock Basing for Breakout to $200

Digital payments platform PayPal, Inc. NASDAQ: PYPL shares have performed impressively as it makes new all-time highs during the COVID-19 pandemic far outperforming the S&P 500 index NYSEARCA: SPY. PayPal is one of those rare pandemic and restart dual narrative beneficiaries. Touchless digital transactions combined with instant money transfers have built a massive global network of 300 million users. PayPal has executed well on the network effect by expanding services for its growing customer base to include Venmo, Xoom, iZettle, Honey, PayPal Credit, and PayPal Working Capital. They were one of the first digital payment platforms to provide repayment holidays for PayPal Working Capital customers during the COVID-19 pandemic. This goes a long way to build up goodwill and is something the banks wouldn’t even fathom proactively implementing. This sincerity strikes a chord with small businesses and is a key reason they are taking market share away from consumer banks, especially during periods of struggle. Investors may consider monitoring opportunistic entry levels as PayPal shares set the stage for a rally towards the $200 mark.

Q1 2020 Earnings Release Reaction

PayPal reported its Q1 2020 earnings for the quarter ended March 2020 on May 6, 2020 missing both top and bottom-line estimates. Earnings were $0.66-per share versus consensus analyst estimates of $0.74 on revenues of $4.62 billion versus $4.72 consensus analyst estimates. The Company added 20.2 million net new active accounts including 10.2 million from the acquisition of Honey. PayPal expects revenues to grow at 13% while non-GAAP EPS grows by 15%-to-20%. Due to COVID-19, management withdrew full-year 2020 guidance. With a (-$0.09) EPS miss and a (-$99.25 million) revenue miss, the initial post-market sell-off to $120.05 from a market closing price of $128.08 made sense. What startled traders and investors is the complete reversal after the 5:00pm EST conference call causing shares to gap up to $144.97 the next morning.

Q1 2020 Conference Call Reaction

The management executed a flawless conference call that completely reversed the narrative and sentiment. Apparently, the COVID-19 surge of business hit like a tsunami in April, just after Q1 2020. April 2020 saw “unprecedented demand” as branded transactions grew 43% year-over-year (YoY). Branded transactions refer to the various product services like Braintree, iZettle, Hyperwallet, PayPal and Venmo. The Company has grown to 25 million merchants and added 7.4 million new customers in April alone. Remember, they added 10 million users in the first three months of 2020. The transition to digital payments and transactions has “rapidly accelerated”. April revenues grew 20% YoY. The Company also raised $4 billion in senior notes offering on May 18, 2020 for cheap. The senior notes offering consisted of $1 billion tranches of 1.35% due 2023, 1.65% due 2025, 2.3% due 2030 and 3.25% notes due 2050.

Flexible Versus Rigid

PayPal is taking business from the banks and they are too arrogant to notice it. While banks still stick to credit scores and talk of “relationships” with clients, the reality is they are still collecting every possible fee they can. Wait times for customer call centers continue to span longer and longer. PayPal is succeeding by doing the exact opposite of banks and locking in loyal customers in return. For example, a customer with a 500-credit score can forget about getting a business loan regardless of 100% payment history. However, PayPal Capital uses other criteria to determine the amount of a loan. They don’t even bother with credit scores, rather customer activity and history are the key factors. In doing so, PayPal is scooping up volumes and volumes of customers that have fallen through the cracks with traditional banks. PayPal customer service is prompt and relevant with minimal wait times spanning a few minutes at most. They will even contact you within a few minutes after attaining a confirmation code online. Their execution is the epitome of efficiency. Their reps are empowered to reverse fees, make decisions, and implement credits on the spot. They are a form-fitting platform that operates at maximum efficiency, which is the opposite of the rigid policies of traditional banks. Despite the separation of entities from eBay NASDAQ: EBAY , they are still the preferred digital payment provider with extended buyer and seller protection policies. Despite pulling guidance for FY 2020, management set the bar high for Q2 2020 earnings based on April’s numbers. This sets the stage for a pre-Q2 2020 earnings run-up that investors may want to monitor.

PayPal Price Trajectories and Pullbacks

Using the rifle charts on a monthly, weekly, and daily time frame provides a broader view of the landscape for PYPL stock. The monthly rifle chart has a bullish stochastic mini pup that already overshot it’s upper Bollinger Bands at $159. The weekly stochastic crossed up after shares triggered a  market structure low (MSL) above $101.08 and has been pinned to the 100-band with upper BBs near the $184.74 Fibonacci (fib) level. The daily stochastic has been riding above the 80-band for literally three-months. By all accounts, PYPL shares are extremely overbought but have been keeping bears trapped the whole time. When the daily stochastic slips back under the 80-band, investors should be aware of the opportunistic pullback entry levels at the $155.01 weekly 5-period moving average (MA), $146.42 fib, $139.03 gap fib and the $129.06 gap-fill fib. The next Q2 2020 earnings are tentatively due July 22, 2020. With high expectations, shares may launch towards the $184 to $200 range ahead of and into the release, which would be the ideal time for investors to consider winding down positions ahead of the sell-the-news reaction.