PYPL - PayPal - Company Description

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from

Expected earnings May 2nd.

PayPal reported Q4 earnings that rose 59% to 55 cents that beat estimates for 52 cents. Net revenue rose from $2.98 billion to $3.74 billion. Total payment volumes rose 32% to $131.45 billion. They guided for Q1 for earnings of 52-54 cents, compared to estimates for 54 cents. These were dynamite earnings but shares faltered after the weak guidance.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Paypal said payment platform Venmo was on track with expectations. The platform processed $9 billion in payment volume, a 93% YoY increase. Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

In Q3 Paypal said it was acquiring Swift Financial, a small business lender and the transaction would close by the end of 2017. No terms were given. This will extend Paypal's reach for financing services. Paypal already has a working capital unit since 2013 and they have loaned more than $3 billion to small businesses.

The company recently sold its credit card assets to Synchrony Financial (SYF) for $5.8 billion. The bank will become the exclusive issuer of Paypal branded credit cards. The company also raised its guidance for Q4 to 52-59 cents on revenue of $3.64-$3.7 billion. Prior guidance was 37-39 cents on $3.57-$3.63 billion. Paypal said they had been using 40% to 50% of their free cash flow to fund the credit card business. With the asset sale, they will continue to promote the cards and grow the business but it will be up to Synchrony to fund the credit expansion. This was a win-win for both companies.

In December Keybanc raised their price target to $90 saying the Venmo app was the preferred payment app for 76% of responders in a recent survey. They expect $75 billion in Venmo payments in 2018 and Paypal will see earnings rise 4 cents for every $10 billion.

We were stopped out of a prior position when Paypal collapsed after the Ebay earnings. The company announced plans to phase Paypal out of the EBAY network as a preferred payment processor by 2023. Investors did not listen to the entire story. The PayPal CEO said the Ebay transaction revenue was 13% of their total and was growing at only 4% per year. The other 87% of transaction volume was growing at 23% per year. PayPal guided for 2018 for 16% revenue growth and 25% earnings growth.

Shares declined to $76.50 to rest on the support of the 50/60 day averages. Horizontal support is $73.50. I am recommending we reenter a new position on Paypal because there is nothing wrong with the company. This selling has been increased because of the market drop. If we reenter a new position at the open on Monday we could be buying right at support.

Unfortunately, with Paypal at new highs last Wednesday, the LEAP options are expensive. I am going to recommend a combination position. We can sell an OTM put spread for about a $4 credit to reduce our cost in the call. Without a total market meltdown, PayPal should not decline below $70. I would be thrilled to be put the stock at that level if it did happen.

Buy Jan $80 call, currently $9.45, no initial stop loss.
Sell short Jan $70 put, currently $5.95, no initial stop loss.
Buy long Jan $55 put, currently $2.22, no initial stop loss.
Net Debit $5.72.

PGR - Progressive Corp Company Profile

The Progressive Corporation, through its subsidiaries, provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. Its Personal Lines segment writes insurance for personal autos, and recreational and other vehicles. This segment's products include personal auto insurance; and special lines products, including insurance for motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles. The company's Commercial Lines segment provides primary liability, physical damage, and other auto-related insurance for autos, vans, and pick-up trucks, and dump trucks used by small businesses; tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses, and non-fleet long-haul operators; dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-type businesses; tow trucks and wreckers used in towing services and gas/service station businesses; and non-fleet taxis, black-car services, and airport taxis. Its Property segment provides residential property insurance for homeowners, other property owners, and renters, as well as offers personal umbrella insurance, and primary and excess flood insurance. The company also offers policy issuance and claims adjusting services; home, condominium, renters, and other insurance; and general liability and business owners policies, and workers' compensation insurance, as well as sells personal auto physical damage and auto property damage liability insurance in Australia. In addition, it offers reinsurance services. Company description from

The company reported Q4 earnings of 99 cents that rose 55% compared to estimates at 77 cents. Premiums written rose 22% to $6.8 billion. Expenses rose 19.6% to nearly $2 billion. That includes a 19.8% loss and adjustments expense, 16.5% increase in policy acquisition costs and 22% higher underwriting costs. The stock cratered after earnings from the new high at $58.25 to a 2-month low at $54. We were stopped out for a minor gain at $54.65.

Shares have held at that $54 level for the last week despite the market meltdown. As the high flying tech stocks and Dow industrials crash and burn we may be better off going back into a stock that posts steady gains without a lot of volatility. According to Zacks earnings estimates are rising.

Premiums are cheap relative to the high beta stocks. I am going with the ATM strike because the premium is only $1 more than the next higher strike. On a slow mover we do not want to start well out of the money.

Buy Jan $55.00 call, currently $4.50, no initial stop loss because of market volatility.

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