Hold PayPal February 41 Calls

By Linda McDonough • January 27, 2017

PayPal (PYPL) reported a solid fourth quarter last night. Revenue grew 19% and earnings grew 17% to 42c. The stock traded down a bit after hours with the headline that guidance was weak. This feels like market noise as guidance is right on target with Wall Street projections. In fact, management’s guide for 16% revenue and earnings growth for 2017 is higher than prior guidance and frames Wall Street numbers.

PayPal continues to sow the seeds of locking in consumers with its mobile payment systems. Its Venmo person to person payment app, which is taking the market by storm, processed $5.6 billion in transactions in the fourth quarter along, up 156% from the prior year. The company has not incorporated any earnings from Venmo into its 2017 projections, leaving room for upside to earnings.

My call recommendation is based on the market giving PayPal credit for its ability to entice and engage customers in a noisy mobile payment market. It added a record 5.4M users in the fourth quarter, ending the year with a remarkable 197M users who are paying via PayPal more than ever.

I recommend holding the call for the moment but am well aware of the time value that will erode the call’s value as we get closer to the February expiration.

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Derek: Las Vegas, NV

01/27/17 ‐ 4:09pm ET January 27, 2017 at 4:09pm ET

Hi Linda,

I agree with everything you’re saying. I feel the numbers are good, growth is good and forward guidance was good. I’m thinking about rolling my calls to a later date, maybe target 2nd or 3rd quarter earnings.

Thanks!

Derek

Peace54

01/28/17 ‐ 9:05pm ET January 28, 2017 at 9:05pm ET

Hi Linda,
Is it to late to jump on board with PYPL at 41 call Fed 17 or extended exp date????
PayPal is a road buster company and believe the end of week will pick on new week to come.

Linda McDonough

01/30/17 ‐ 7:21am ET January 30, 2017 at 7:21am ET

I also agree that PayPal should move higher over time and the calls were just crushed on Friday. I think there is a decent trade buying them around 40c. Just be aware the futures are indicating a weak market today so maybe go in with a lower buy price than what you see quoted to account for possible weakness on the open. I actually prefer to buy the options mid-morning so you don’t get whipped around on a gap up or down.
Best,
Linda

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