Block, PayPal Q3 earnings to shed more light on consumer spending, BNPL
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Two big payment technology firms, Block (NYSE:SQ) and PayPal (NASDAQ:PYPL), will post their Q3 earnings after Thursday's close, offering a lens into consumer spending patterns. 
If the traditional payment networks are any indication, both companies have a good shot at topping Wall Street expectations. Visa (V) and Mastercard (MA) saw their quarterly earnings beat estimates as consumer spending remained resilient. Most credit card companies, which have already released their earnings, saw borrowing increase. And Bank of America (BAC) data showed a 10% increase in overall consumer payments in September, exceeding the rate of inflation.
PayPal (PYPL) is expected to earn $0.96 per share, the top end of the $0.94-$0.96 guidance range that company issued in August. The average Wall Street estimate for revenue is $6.82B in revenue, just above the $6.81B revenue it recorded in Q2 and higher than its guidance of $6.80B. The company's adjusted EPS has missed the consensus estimate only twice out of the past 12 quarters.
Bank of America analyst Jason Kupferberg sees potential for PYPL's Q3 EPS to beat consensus due its to increased focus on costs controls and the involvement of activist Elliott Management. BofA added the stock to its US1 list in September.
Block's (SQ) Q3 EPS is expected to come in at $0.23, up from $0.18 in Q2. The average revenue estimate is $4.47B, up from $4.40B it posted in the prior quarter. The company has missed the EPS consensus four times out of the past 12 quarters.
For both companies, investors will be interested in the performance of their Buy Now, Pay Later units in terms of whether consumers are increasing use of the installment payment plans and how the companies are faring in the face of stiff competition. In addition, rising interest rates are pushing up BNPL lenders' funding costs, said Evercore ISI analyst David Togus when he downgraded Block (SQ) to Underperform in September.
Mizuho analyst Dan Dolev downgraded Block (SQ) to Neutral in September, partly due to slower market penetration in BNPL. In addition, bitcoin (BTC-USD) continues to drive sentiment around the stock even though it accounts for less than 5% of the company's gross profit, he said. 
In Q2, Block's (SQ) BNPL platform contributed $208M in Q2 and $150M of gross profit. PayPal (PYPL) said its Buy Now, Pay Later products processed $4.9B in Q2, up 226% Y/Y.
For a better view of BNPL, Affirm Holdings (AFRM) is set to report its fiscal Q1 results on Nov. 8. Its expected to post a loss of $0.88 per share on revenue of $360.5M. In August, it guided for Q1 revenue of $345M-$365M and an adjusted operating loss at 10%-12% of revenue.
SA contributor JR Research said Block is under pressure to deliver in Q3 earnings against a worsening macro outlook, putting management's credibility to the test.
Meanwhile, for PayPal (PYPL) SA contributor Tech Stock Pros sees multiple tailwinds underway.