PayPal’s shares hit a high of $124.45 on the 18th of February 2020, and then experienced a massive slump of 16.5% in the month of March, as disruption in the global supply chain and shutdowns related to the COVID-19 pandemic hit the e-commerce industry hard. Furthermore, reduced consumer spending by cash-strapped customers may also affect the company’s revenues in the short-term and medium-term. Card providers VISA and MasterCard have already reduced their revenue expectations for 2020.
The volatility and choppy trading pattern seen at the beginning of the month of April 2020 on PayPal’s stock mirrors the uncertainties that the e-commerce industry is going through at the moment. It has been a sandwich of positive and negative news about the domestic coronavirus outbreak, causing many stocks exposed to the situation to experience see-saws in price action.
This has played out in the last two trading sessions on PayPal. In the trading session of April 7, 2020, PayPal (PYPL) closed 1.37% lower to end the day at a price of $100.28. This drop was more than the 0.16% lost by the S&P500, and the 0.19% drop suffered by the Nasdaq 100, where PayPal’s stocks are listed. However, PayPal was able to bounce back on April 8 to close 4.77% higher, ending the day at 105.60. This bounce also mirrored the gains recorded by the Nasdaq 100, which closed 2.27% higher.
So what factors could impact the share price of PayPal in the 2nd quarter?
Fundamentals
PayPal’s stock price movements could be decided in the short-term and medium-term by the earnings numbers expected later in the month, and also by announcements from the company about any policies or changes it will introduce during the COVID-19 pandemic that impact sales, revenue, signups, and any other metric that will ultimately have an impact on its earnings and profitability.
PayPal is widely expected to release its next quarterly earnings report on April 22, 2020, even though the company is yet to provide official confirmation on the date of release. According to a poll of 10 analysts, the forecast by Zacks Investment Research is for PayPal to register estimated earnings per share of $0.58 for the quarter. This is the same as the earnings per share (EPS) that was recorded in the same quarter the previous year. This is the figure that investors are hoping that PayPal would beat. It would be interesting to see what the numbers are, given the drop-off in logistics because of the lockdowns and business shutdowns caused by the coronavirus outbreak all over the world.
The previous earnings per share reported on January 30, 2020, were $0.86. What this means is that the Zachs Investment Research estimates for the EPS has probably factored in a drop due to the current pandemic. This may also suggest that the markets may have priced in a drop and if the figure comes in at a little less than the estimate, the markets may be able to accommodate such a drop without exerting too much of a downside impact on price action.
Furthermore, investors will also watch the earnings call to see if the company provides forward guidance on its earnings and revenue projections. This may end up having more of an impact on PayPal’s price movement in the short-term than the actual earnings numbers.
Technical Outlook for PayPal Stock
PayPal is up 2.01% on the day, and up 9.61% on the week as the time of writing, as the CEO has pledged that the company would not lay off anyone during the pandemic.
The monthly chart shows that technically speaking, PayPal remains in a long-term uptrend. However, the presence of the double top on the monthly chart is a sign that the uptrend has stalled. Price has since retreated from those tops, and is now testing the 94.48 price level which acts as the neckline to the double top. The month candle for March 2020 closed below this neckline; we will need to see where the April 2020 monthly candle ends to be able to conclude if the neckline has been broken or not.
Paypal Monthly Chart: April 8, 2020
The weekly chart for PayPal indicates that the weekly candle is in the middle of the resistance zone that has been identified on the chart by the red rectangle. This zone is formed by the 98.68 price level acting as the floor, and the 102.08 price level acting as the ceiling. This zone has seen several historical price tests and is now being challenged by the weekly candle. This candle had actually pushed all the way up to the 107.17 resistance before yesterday’s bearish price action caused a pullback.
PayPal Weekly Chart: April 8, 2020
The daily chart reveals that PayPal is in the pullback stages of the price reversal from the completed “W” pattern. However, the initial downward move has run into the support zone mentioned above. It is possible that we could have a price bounce at this support area before another attempt is made by sellers to breach this support zone. Supporting the downside move as well as the hidden divergence that exists in the form of the lower highs of price and the higher lows of the RSI indicator. This hidden bearish divergence could imply downside continuation of price.
PayPal Daily Chart: April 8, 2020
If the price is to complete the downside move from point D on the “W” harmonic pattern, it must breakdown the support zone which has the 98.99 price level as the lower barrier. A breakdown of this support zone requires two successive candles to achieve a penetration close below 98.99 for confirmation. If a breakdown does occur, we could see the price target the next support price level at 94.48. The point C on the harmonic pattern, representing the higher low of the pattern, offers itself as the next support area if sellers are able to force prices below 93.98. The picture on the monthly chart is also of vital importance. If the monthly candle ends below the 94.48 price level, this would confirm the breakdown of the neckline, and signify the reversal of the trend from a long-term uptrend to a long-term downtrend.
On the flip side, if buyers are able to resist price from breaking below the support zone that has 98.99 as the lower barrier, this could allow price to target 107.17 initially (lows of 31 December 2019 and 6 January 2020), with 111.22 followings shortly after. This price move would then invalidate the “W” harmonic pattern. If price action is kept above 94.48 by the end of the month, this would preserve the long-term uptrend of PayPal’s stock.
Until the time of the earnings call, PayPal’s share price is expected to continue experiencing volatility in the short-term, in response to updates about the COVID-19 pandemic, especially as it affects the US.