Insights

Alphabet, PayPal and EBay Spike as Digital Boom Continues: Earnings This Week

Major technology stocks delivered strong results again. This week, Alphabet, PayPal and eBay stood out the most.

Alphabet (GOOGL) made the biggest splash, spiking more than 12 percent to new record highs. The search giant benefited from a stay-at-home boom in online advertising. But a lot more is going on.

First is YouTube. While the video platform may be the world’s second-most popular web site (trailing only Google.com), it’s only now starting to monetize its traffic. Revenue from the division totaled $6.89 billion, almost 13 percent more than expected. Analysts see future growth boosting profits because new ad revenues will bring very low incremental costs.

Second are enhancements to the Search business, including Maps and artificial intelligence (AI)-powered suggestions.

Third is the Cloud division, which GOOGL just started to report more completely. The unit lost $5.6 billion in 2020 and $1.24 billion in the fourth quarter. While that disappointed some, CEO Sundar Pichai is sacrificing short-term profits to gain long-term market share. The plan is to cut deals aggressively now, then gradually improve margins in coming quarters. Investors and analysts seemed to embrace the long-term growth story.

Alphabet (GOOGL), daily chart, with 50- and 100-day moving averages.

PayPal’s QR Revolution

For years, PayPal (PYPL) grew along with e-commerce and the Internet. Now it’s entering the brick-and-mortar realm with a QR-based point-of-sale service. The fintech firm is further boosting volume with “Buy Now Pay Later” — essentially automatic, interest-free short-term loans.

“As with QR codes, we are seeing a meaningful halo effect on overall transactions,” CEO Dan Shulman said on the conference call. “We all know the current financial system is antiquated.”

PYPL wants to become a “super-app” for everything financial , letting users flip between payments, personal transfers and cryptocurrency investing. It received a huge boost from the pandemic and is now looking to build upon that momentum. Management will provide more updates at its analyst day next Thursday, February 11.

EBay Breaks Out

Forward
P/E Ratio
Amazon.com (AMZN) 60x
Etsy (ETSY) 90x
PayPal (PYPL) 52x
eBay (EBAY) 15x

PYPL is worth 7 times more than eBay (EBAY) and GOOGL is worth 35 times more. They also entered the quarter with much more analyst enthusiasm. PYPL and GOOGL have 1.8 average ratings, according to Yahoo Finance. (1 is the best, 5 is the worst.) EBAY ranks 2.5, exactly between “buy” and “hold.” It also trades at much lower price/earnings (P/E) ratios than peers.

Despite that disadvantage, EBAY might have had the most impressive quarter. Earnings and revenue beat as active buyers grew 7 percent. Guidance was 17 percent above consensus. The company also benefited from advertising revenue as it uses its platform as a marketing service for sellers.

The big surprise was in used merchandise like sneakers and watches, which the company aids by providing authentication services. CEO Jamie Iannone expects more growth from buyers becoming sellers of their products. This business is potentially interesting because EBAY only acts as an intermediary without having to pay for inventory.

PayPal (PYPL), daily chart, with 50- and 100-day moving averages.

“This quarter, our consumer-to-consumer gross merchandising volume (GMV) outgrew our business-to-consumer GMV by sellers coming on the platform and getting activated,” he said in an interview on CNBC. “When a buyer becomes a seller they become twice as valuable.”

Like GOOGL with YouTube, Iannone’s looking to generate high-margin revenue from an already-busy website. After 25-years of playing second-fiddle on the web behind Amazon.com (AMZN), is EBAY’s model as an online flee market finally paying off?

Pinterest Jumps on Ad Strength

Pinterest (PINS) is also making more money from its traffic. Average revenue per user (ARPU) spiked 29 percent overall last quarter, including a 49 percent surge domestically. The social-media company benefited from the same boom of online advertising that helped GOOGL and Facebook (FB). Analysts see potential for PINS to gain more acceptance with big advertisers and small businesses. The big question could be, will it take dollars away from FB?

Snap (SNAP), which more than doubled since its last earnings report, fell despite beating estimates.

Amazon Drifts as Bezos Steps Down

Amazon.com (AMZN) reported strong earnings this week, also benefiting from the growth of online advertising. Earnings and revenue beat estimates, but the stock did nothing. At least two issues seemed to weigh on sentiment.

First, founder Jeff Bezos announced he’ll step down as CEO after 26 years and remain executive chairman. Second, revenue and profit margins at the cash-cow AWS business missed estimates.

Qualcomm (QCOM) disappointed investors by missing revenue forecasts. Management blamed shortages in the semiconductor supply chain. Separately, Ford Motor (F) said a lack of chips is slowing production of its F-150 pickups. Some investors have responded to the tight semiconductor market by focusing on equipment companies Teradyne (TER) and Lam Research (LRCX). Both reported strong numbers earlier this earnings season.

Activision Over $100?

Video-game maker Activision Blizzard (ATVI), another beneficiary of the pandemic, also beat estimates. Bookings surprised to the upside. ATVI shares rose above $100 for the first time ever in the premarket today.

Align Technology (ALGN), daily chart, with 50- and 100-day moving averages.

Here are some other noteworthy stocks that jumped to new highs this week:

  • Digital Turbine (APPS), whose software helps developers publish mobile apps, crushed estimates again as EBITDA quadrupled. Revenue was 17 percent above consensus. APPS has gained more than 1,000 percent in the last year.
  • Orthodontics disruptor Align Technology (ALGN) beat estimates again as its brand recognition spreads.
  • Avery Dennison (AVY) beat across the board and raised guidance. Management said volumes are improving in its retail and health-care lines as the economy reopens. The label maker also cited strong demand for radio-frequency identification (RFID) products, partially because of an acquisition last year.

In conclusion, quarterly results continue to show significant innovation U.S. companies. GOOGL, PYPL and EBAY all showed signs of building on their earlier businesses. AMZN showed weakness in its key AWS business. Traders also took profits in SNAP following a blistering rally in the last three months.


This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 05/02/2021.

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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