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PayPal gains after analysts say Venmo was earnings highlight

PAYPAL Holdings rallied 8 per cent pre-market after beating Q3 estimates, boosting its 2018 forecast and providing 2019 guidance that was in line with three- to five-year targets. But analysts said the real bright spot in the earnings report was new insight into how PayPal is making progress toward monetising Venmo.

"Our monetisation efforts appear to be reaching a tipping point," said PayPal CEO Dan Schulman, noting that 24 per cent of Venmo users have participated in a "monetisable action" compared with 17 per cent last quarter.

Most of Wall Street found the firm's results encouraging, but sceptics cautioned about fairly valued shares and an earnings beat that was driven by "other value added services", which is related to lending.

Morgan Stanley analyst James Faucette said PayPal's beat showed impressive growth in net new active accounts, customer engagement and Venmo monetisation. Guidance for 2019 should "appease sceptics".

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"Wall Street doesn't fully appreciate the growth opportunity from PayPal's very substantial online acceptance lead and operating leverage potential."

He expects PayPal to keep offering stable and compounding earnings growth, bolstered by its big acceptance lead with non-Amazon merchants, the shift toward e-commerce and its network effect.

John Davis, analyst at Raymond James, said active customers and engagement trends were encouraging and 2019 guidance was much better than expected. Venmo monetisation is also "picking up steam," which may have been the biggest positive.

" The stock should reverse its recent decline given overly negative sentiment headed into earnings," he added.

Earnings are easy to obsess about, said MoffettNathanson analyst Lisa Ellis, but investors should instead focus on partnerships, which are the "single most compelling reason to buy PayPal's stock now". The American Express-Walmart partnerships may just be the beginning. BLOOMBERG