PayPal 2018 Q2 Conference Call Notes

Sorry this has taken me so long to get to! Okay, let’s get to PayPal’s quarter:

I thought one of the biggest stories was its double-whammy that it just continues to connect with quarter after quarter: More active users that are using the platform more. In Q2, PayPal’s active user accounts rose to 244 million, a 15% YOY increase. Since Q1, the company added 7.7 million new accounts. Maybe even better, over the past year, active users have used the platform to make 35.7 transactions, a 9% increase YOY. That’s an acceleration of growth in this key category. In conference call, CEO Schulman attributed this to 3 things:

"We’ve got a number of tailwinds around engagement. First of all, I think our customer experiences are better than they’ve ever been before. You look at One Touch, its conversion rate … Choice is leading to more engagement … The Venmo card is going to lead to more engagement. We have the PayPal Cash Card, that’s going to lead to more engagement … And so I think we’re going to continue to see engagement grow at a nice clip going forward. And I think it bodes well obviously to have both more customers coming on than ever before, using this service more than they ever have. "

On my scorecard, I’ve got: 1) Customer choice initiatives, stemming from its many partnerships and deals it has made past two years; 2) Cards let customers use their accounts more easily in more places; 3) One Touch, which just makes it all too easy to use PayPal for online purchases.

Also, interesting to note, the new users are engaging with PayPal’s platform more than existing accounts. Schulman said:

“Most of the time, you’d expect as you grow your net new actives, you get more and more that maybe the quality of those net new actives aren’t the same as what they were before. It’s actually the opposite here. The new net new actives are more engaged than our previous cohorts, which by the way means, we have a potential opportunity to educate our older customers on all the new services that we have as well. So, we’re feeling pretty good about both net new actives and engagement.”

I think this is the big picture for PayPal – more users engaging with the platform more than ever before. If company continues to deliver on this 1-2 combo (and I believe it will), I think its future is very bright.

Now let’s look at some of the other details from quarter:

Mobile payment volume: Grew to $54B, 49% YOY increase, now 39% of PayPal’s total payment volume. Driven by One Touch.

One Touch: Continues to grow too, boasting 102M consumers and 9.5M merchants.

More new deals: Clydesdale Bank (Scottish bank), HDFC Bank (large bank/financial services company in India), Santander Bank, and Shinhan Card (largest South Korean card issuer). Deals seem to be similarly structured as previous partnerships, making it easier to link PayPal account to bank accounts directly from bank’s app/website. Note the international presence of these deals. PayPal should not be considered a domestic story.

Venmo: We keep hearing about worthy competition such as Square’s Cash App and Zelle, but Venmo keeps growing. In Q2, payment volume was $14.2B, 78% increase YOY. No numbers, but Schulman said net new actives hit all-time high. Again, I believe there is more than enough room for multiple winners in this space. Don’t let headlines about Cash App or Zelle scare you off until Venmo’s numbers show much slower growth.

Pay with Venmo: 17% of Venmo users have used it for a “monetized experience”. COO Bill Ready:

"…on the Venmo monetization side, we’re certainly still in the early innings there for sure. We put out a great set of products that we see users really engaging with strongly. As you called out you have Pay with Venmo that is seeing really nice demand from merchants … like Uber and Uber Eats and GrubHub, Eat24, Seamless and many others and we think we’ll see a steady drumbeat of those coming on.

There is a great pipeline of those adding in dedicated Venmo buttons. In addition to the 2 million-plus merchants that are already accepting Pay with Venmo via PayPal, Instant Cash Out has seen really great pick-up … And so we see a real composite of those things like smart buttons that will allow more people easily have a dedicated Venmo buy button.

We think there’s a lot left in front of us there. It will be a multiyear journey. "

Venmo Card: Management seemed very pleased with demand for Venmo Mastercard, allows Venmo users to make purchases everywhere Mastercard is accepted, in-store and online. Essentially makes Venmo platform much more holistic, basically extending everywhere. Similar to SQ’s Cash App card. Venmo card was credited for increased user engagement this quarter.

Read the entire conference call at: https://www.fool.com/premium/coverage/earnings/call-transcri…

That’s all I got for now! Please drop a comment/thought/concern if one comes to you! Also, very important, if you have a question, don’t hesitate to ask!

Matt
Long MA, PYPL, SQ
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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