Travel is back, PayPal disappoints, Cannabis gains on Republican bill

Weak guidance sends PayPal shares down

Investors were initially focused on PayPal’s Q3 result showing EPS ahead of estimates and revenue a bit below estimates, but the Venmo partnership with Amazon allowing customers to pay on Amazon with their Venmo app, kickstarted the initial positive sentiment. But then investors realized the big miss on Q4 revenue guidance at $6.85-6.95 vs est. $7.24bn, showing revenue growth is coming down to 14% y/y slightly up from Q3 at 13% y/y, but substantially below the company’s own guided long-term growth rate of 20%. Operating margin was not improving either falling for the second straight quarter. PayPal shares were 5% lower in extended trading extending this year’s drawdown to 31%. Our payment equity basket is the worst performing basket this month.

Rumours of House Republican bill legalizing cannabis

It is what the cannabis industry has been waiting for, but yesterday rumours suggested that House Republicans are expected to introduce a reform bill removing cannabis from the controlled substances act, which basically means that it will no longer be criminal on a federal level. Essentially the regulation would be more like the current regulation of alcohol. While still a rumour and an initial draft, it was enough to please investors yesterday sending our cannabis equity basket up 7.6% and 10.2% this month.

Besides the good news on the legislative side of the industry, one of the largest companies in the industry Canopy Growth reported very disappointing earnings with Q3 revenue at $131mn down 3% y/y and gross margin plunging to -54.2% from 20% in Q2 driven by an inventory write-down as consumers’ preferences changed during the quarter towards higher end products. This is a major negative for investors and the industry which is still battling with showing profitability.