PayPal 2017 Q1 Conference Call Notes

We continue to build on our strategies of reimagining and democratizing the management and movement of money for our consumers. Helping drive the global transition from cash to digital payments and positioning our millions of merchants to benefit from the noble revolution at move to an all-digital cross-context retail environment.

Our powerful two-sided network engages both consumers and merchants and the larger our scale the stronger our network effect becomes. We have made meaningful progress in advancing merchant adoption of PayPal in the quarter. At the end of March the number of active merchant accounts on our platform increased to 16 million. The size of our merchant base is a formidable competitive advantage and is extraordinarily difficult for others to replicate.

  • PayPal President and CEO Dan Schulman

I thought the major theme of PayPal’s 2017 Q1 conference call was how its strong, consistent growth was beginning to fuel a powerful network effect for the company. The beauty of this type of growth is that it drives itself. The more users that sign up for the platform the more important the service becomes for retailers to adopt it and the more merchants that accept it, the more attractive it becomes to new users. By the end of the quarter, 16 million retailers were accepting PayPal as a method of payment; 5 million were accepting One Touch’s checkout solution.

What was driving this growth? Schulman mentioned a few things:

  1. Mobile. One Touch is just the king of mobile commerce right now.

  2. Customer choice. All the partnerships PayPal is making is beginning to pay off. People like using credit cards for certain purchases and debit cards for others, using any operating system they want, being able to use a method of payment over any medium (e.g. mobile, online, POS), etc. Bottom line: Customers like choice. PayPal’s partnerships give that better to them than anyone else.

  3. Streamlined application process

Let’s go through some more highlights of the call:

• A few retailers added PayPal to its checkout processes: PaPa John’s, Groupon, several large int’l retailers

• More on One Touch: 53 million consumers, 5 million merchants, management expects both to increase “noticeably” throughout year. Increased mobile payment volumes 51% YOY to ~$32B. 32% of payment volume now originates on mobile device. One Touch also drives user engagement which keeps churn down and helps net adds of active accounts.

• Wells Fargo latest bank to forge partnership w/PayPal. Similar to past deals.

• Venmo processed $6.8B in payments, more than double what it processed year ago. Any profit from Venmo is not included in guidance now but Pay with Venmo will begin to be rolled out in big way this quarter. Merchants will not have to do any additional prep or work to integrate Pay with Venmo into their checkout, Braintree can do that automatically. Same exact way One Touch was so successfully rolled out. CEO Schulman stated:

Today we are announcing the opening of our data for select U.S. PayPal merchants who accept Venmo as a mobile payment option. We anticipate the ability to pay with Venmo will be widely deployed across millions of our U.S. PayPal merchant base by the end of this year.

Investments we have made in our platform architecture now allow us to enable Venmo as a payment method for our PayPal merchants without any additional integration work on their end, mirroring the approach we use to successfully rollout One Touch.

• Authorized $5B buyback. $500M still remaining on previous buyback authorization. Right now, total, that’s about 10% of market cap.

• On the acquisition of Tio, Schulman said:

Tio is a leading multichannel bill payment processor in North America and processed more than 7 billion in bill payment in its fiscal 2016. The company’s digital platform and physical network of agent location make paying bill simpler, faster and more affordable.

And importantly, gift consumers may not have access to digital financial services, the ability to easily migrate cash into a digital network and as a result benefit from the convenience and speed of digital bill payments. With its network of 10,000 supported billers, Tio will meaningfully expand our ability to offer digital financial services to tens of millions of underserved consumers.

That’s about all I got. This was a very strong quarter. If you remember, after last quarter, PayPal’s shares dropped because even though they raised guidance for the full 2017 fiscal year, they came in what many thought of as soft guidance for the Q1. Well, the company just beat that “soft” guidance. And raised guidance for the year … again.

This is a management team that knows exactly what they want to accomplish and a have a clear vision on how to accomplish their goals. Shares are up almost 25% YTD but I don’t think its done going up yet. JMHO, of course. Please remember I am not an analyst, just a regular investor with pedestrian returns.

As always, I would love to hear others’ comments, questions and thoughts.

Many thanks to Seeking Alpha for providing a full transcript to the conference call at…

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