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PayPal Tops Forecasts

October 19, 2018

PayPal reported third quarter results for the period ended September 30, 2018. The digital payments firm noted earnings of 58 cents vs. 54 cents per share which investors expected. On the revenue side the company delivered $3.68 billion vs. $3.66 billion, that was anticipated.

Financial highlights for third quarter 2018

Revenue growth of 14% to $3.68 billion on both a spot and foreign currency-neutral (FX-neutral or FXN) basis. The completion of the sale of the U.S. consumer credit receivables portfolio to Synchrony in July 2018 negatively affected revenue growth by approximately seven percentage points.

 

GAAP operating margin expanded 24 basis points to 13.3%; non-GAAP operating margin expanded 142 basis points to 21.4%

GAAP EPS of $0.36, increasing 17%; non-GAAP EPS of $0.58, increasing 26%

Operating highlights for third quarter 2018

9.1 million active accounts added versus an increase of 8.2 million in Q3 2017, and ended the quarter with 254 million active accounts, up 15%

2.5 billion payment transactions, up 27%

$143 billion in total payment volume (TPV), up 24%, or 25% on an FX-neutral basis

36.5 payment transactions per active account on a trailing twelve months basis, up 9.5%

"PayPal had another excellent quarter. New partnerships with American Express and Walmart will increase the value that we can offer to our customers. Our strong balance sheet and cash flow enable us to aggressively invest in innovation and growth, creating sustainable and long-term value for our shareholders," said Dan Schulman, President and CEO of PayPal.

PayPal's expanding value proposition

PayPal processed $143 billion in TPV in the third quarter, representing growth of 24%, or 25% on an FX-neutral basis. Merchant Services TPV grew 28% on an FX-neutral basis. eBay Marketplaces volume grew 3% on an FX-neutral basis, and represented 11% of overall TPV for the quarter versus approximately 13% a year ago. Person-to-Person (P2P) volume grew 50% to more than $36 billion, and represented approximately 25% of TPV in the third quarter.

Strong mobile engagement on PayPal's platform contributed to approximately $57 billion in mobile payment volume, growing approximately 45%. In the third quarter, mobile payment volume represented 40% of overall TPV. Venmo, the company's social payments platform, processed approximately $17 billion of TPV in the third quarter, growing 78%. On a trailing twelve month basis, Venmo processed approximately $54 billion of TPV.

As part of PayPal's efforts to further improve its value proposition for merchants, Funds Now was launched in the third quarter. This initiative gives merchants instant access to funds by eliminating holds, delays and reserves and is now available to sellers in the U.S., UK and Australia.

In the third quarter, PayPal closed the acquisition of iZettle, a leading small business commerce platform in Europe and Latin America. This acquisition expands PayPal's suite of products and services for small businesses.

PayPal partners with American Express and Walmart

PayPal and American Express announced a comprehensive strategic partnership today. The agreement will allow PayPal to access American Express tokens and enables a deep integration of PayPal capabilities with the American Express platform, including the ability to transfer and use American Express rewards points at PayPal merchants.

In October 2018, PayPal announced a partnership with Walmart to offer PayPal cash in and cash out money services at Walmart retail stores. Using the PayPal mobile app, customers can load cash into and withdraw money from their PayPal balance at all Walmart stores in the U.S. Additionally, PayPal Cash Mastercard customers can use their PayPal balance to shop in store, on a mobile device and online at Walmart, as well as withdraw cash at the register or from Walmart's ATM locations nationwide.

2018 Financial Guidance

Full year 2018 revenue and earnings guidance

  • PayPal expects revenue to grow 18 - 19% at current spot rates and 17 - 18% on an FX-neutral basis, to a range of $15.420 - $15.500 billion. As previously disclosed, full year 2018 revenue guidance includes an expected decline related to the sale of U.S. consumer credit receivables to Synchrony of approximately 3.5 percentage points for full year 2018.
  • PayPal expects GAAP earnings per diluted share in the range of $1.65 - $1.69 and non-GAAP earnings per diluted share in the range of $2.38 - $2.40.
  • Estimated non-GAAP amounts above for the twelve months ending December 31, 2018, reflect adjustments of approximately $1.15 - $1.21 billion, primarily representing estimated stock-based compensation expense and related payroll taxes in the range of $895 - $915 million.
  • Estimated GAAP and non-GAAP results include the expected impact of completed acquisitions and acquisitions that have been announced and are expected to close before the end of 2018.

Fourth quarter 2018 revenue and earnings guidance

  • PayPal expects revenue to grow 13 - 15% at current spot rates and 13 - 15% on an FX-neutral basis, to a range of $4.195 - $4.275 billion.
  • PayPal expects GAAP earnings per diluted share in the range of $0.43 - $0.47 and non-GAAP earnings per diluted share in the range of $0.65 - $0.67.
  • Estimated non-GAAP amounts above for the three months ending December 31, 2018, reflect adjustments of approximately $310 - $370 million, primarily representing estimated stock-based compensation expense and related payroll taxes in the range of $210 - $230 million.
  • Estimated GAAP and non-GAAP results include the expected impact of completed acquisitions and acquisitions that have been announced and are expected to close before the end of 2018.

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