PayPal and Upstart stock prices diverged after earnings: better buy?

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on May 10, 2023
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  • Upstart stock price surged after the company published encouraging results.
  • PayPal shares retreated because of margin pressure issues.
  • I explain why PayPal is still a safer bet than Upstart.

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PayPal (NASDAQ: PYPL) and Upstart (NASDAQ: UPST) stock prices diverged after they published their earnings this week. Upstart shares jumped by 40% in extended hours to $19.66 while PayPal stock crashed by more than 12% on Tuesday. Which is a better buy between Upstart and PayPal?

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PayPal and Upstart earnings download

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Upstart and PayPal are leading fintech companies that offer different services. PayPal is a highly diversified company that provides numerous services to individuals and companies. Its flagship product allows users to send money to each other and make payments online.

PayPal also owns companies like Venmo and Honey, which helps people get coupons when shopping online. The firm’s other products are its buy now pay later (BNPL) and business lending. 

Upstart, on the other hand, provides loans to both individuals and companies. That is the only service. Its subsidiaries like Prodigy and Upstart Loan Trust all work to help the company provide the loan solutions.

PayPal stock price crashed despite a large earnings beat, as we wrote here. The company’s revenue jumped to $7.04 billion while its profit beat by 6 cents to $1.17 per share. Its members continued rising, helped by its BNPL solutions. Most importantly, the company decided to raise its full-year guidance. It expects the non-GAAP EPS to jump to 20%. Therefore, PayPal shares dropped because the company downgraded its margins.

Upstart stock price, on the other hand, soared after the company’s revenue and profitability beat estimates. Its revenue from fees jumped to $117 million while net interest income came in at minus $14 million. The volume of loans taken dropped to 84k while the average loan size came in at $12,000. Further, the company upgraded its results as it expects its Q2 revenue to come in at $135 million. The CFO said:

“We are happy to be signaling a return to sequential growth and cash profitability in the current market environment. Our improving guidance is clearly not deriving from obvious improvements to the macro economy just yet.”

PayPal vs Upstart: better buy?

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PayPal vs Upstart

There are several reasons why I believe that PayPal is still a better investment than Upstart. First, PayPal’s results were actually good as the company continued growing. The firm’s profitability will likely continue after the company decided to lay off 2,000 jobs in February. 

Second, PayPal has more than 420 million customers globally, meaning it has more room to monetize them in the future. For example, the company is focusing on its fast-growing unbranded products to grow its business. It is also growing its BNPL business and increasing the compatibility of PayPal and Venmo.

Third, PayPal is an already-profitable company that is significantly undervalued. It has a forward PE ratio of 22.27, which is lower than other companies like Fiserv, Adyen, Visa, and Mastercard. On the other hand, Upstart is still a loss-making company that faces more headwinds ahead.

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