PayPal Reports 2017 Q4 Earnings

Stock is selling a little bit in AH trading, but the numbers look really good at first glance, IMHO. From the press release:

“PayPal had a transformative year in 2017. We brought record numbers of new customer accounts to our platform by democratizing financial services for consumers and commerce capabilities for merchants. We also substantially expanded our opportunities for future growth and redefined our competitive position through our successful partnership strategy driven by our open platform architecture,” said Dan Schulman, President and CEO of PayPal.

Schulman continued, “I am very pleased to announce that PayPal and eBay have signed a term sheet to make PayPal available, as a way to pay on eBay, through July 2023. We enter 2018 with strong momentum supporting an increasingly differentiated and expansive value proposition, and a focused commitment to deliver increasing value to our customers and shareholders.”

See the entire release at…

Really quick, Venmo TPV was “only” up 86%. Revenue and EPS growth continue to accelerate. Margins were up significantly. Not sure if that was related to Venmo’s merchant launch or the selling of its consumer credit portfolio to Synchrony. I’m sure we’ll get more color on that in the conference call.

Here’s the numbers we track:

Revenues (millions)			Q1		Q2		Q3		Q4	
2014					1874		1983		1971		2193	
2015					2137		2297		2258		2556
2016					2544		2650		2667		2981
2017					2975		3136		3239		3744

EPS (non-GAAP)			        Q1		Q2		Q3		Q4
2014					0.27		0.28		0.24		0.28	
2015					0.29		0.32		0.31		0.36	
2016					0.37		0.36		0.35		0.42
2017					0.44		0.46		0.46		0.55

2017 Q4 Earnings (Current)

Revenue Growth (billions)
2016 Q4 TTM Revenue = 10.842
2017 Q4 TTM Revenue = 13.094
YOY Revenue Growth = 20.77%, previous quarter 18.4%

EPS Growth (non-GAAP)
2016 Q4 TTM EPS = 1.50
2017 Q4 TTM EPS = 1.91
YOY EPS Growth = 27.33%, previous quarter 23.6%

Non-GAAP P/E (Check Current Price) = 85.11/1.91 = 44.56

1YPEG = 44.56/27.33 = 1.63

PayPal Metrics

Here is a look at some of PayPal’s other important metrics growth:

of active accounts: 227M, +15% YOY

Payment transactions: 2.199B, +25% YOY
Payment transactions per active account: 33.6, +8% YOY
Total Payment Volume (TPV): 131.45B, +32% YOY
Transaction margin: 65.1%
Operating margin (non-GAAP): 22%
Venmo processed $10.4B TPV, +86% YOY
Cash and cash equivalents: $7.7B

And here’s a look at the historic growth of those numbers:

# of Active Accounts (millions) 	Q1		Q2		Q3		Q4
2014					148		152		157		162
2015					165		169		173		179
2016					184		188		192		197
2017					203		210		218		227

Payment Transactions (millions)	        Q1		Q2		Q3		Q4
2014					918		930		972		1144
2015					1123		1161		1216		1428
2016					1414		1448		1512		1755
2017					1732		1775		1900		2199

Transactions Per Active Account	        Q1		Q2		Q3		Q4
2014					23		23		24		24.5	
2015					25.2		26.1		26.9		27.5
2016					28.4		29.4		30.2		31.1
2017					31.7		32.3		32.8		33.6

TPV (billions)				Q1		Q2		Q3		Q4
2014					53.676		56.736		58.184		66.039
2015					63.021		67.482		69.738		81.523
2016					81.056		86.208		87.403		99.348
2017					99.327		106.44		114.05		131.45

Transaction Margin (%)			Q1		Q2		Q3		Q4
2014					65.0		65.7		63.1		63.5	
2015					64.2		63.8		62.3		61.1
2016					60.4		59.8		58.7		57.7
2017					56.7		56.3		54.8		65.1

Operating Margin (%)(non-GAAP)	        Q1		Q2		Q3		Q4
2014									18.4		20.4
2015					22.1		22.6		19.9		20.8
2016					21.1		19.9		18.4		21.1
2017					21.6		21.0		20.0		22.0

Be back with conference call notes in next few days. Looks like a good quarter though at first glance.

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Shares are down about 10% in AH trading and now we know why. Ebay will be dropping PayPal for Adyen for its payments business in 2021.

EBay Inc. will shift its payments business from long-time partner PayPal Holdings Inc. to Adyen BV, a global payments company based in the Netherlands, further distancing the companies that split in 2015 but remained intertwined through an agreement that fully expires in 2020.

Shares of PayPal fell after the news, dropping as much as 15 percent in extended trading.

PayPal will remain a checkout option for EBay shoppers at least until July 2023, EBay said in a statement. Adyen will gradually take over processing EBay payments, beginning in North America this year and will handle a majority of transactions in 2021. PayPal is currently EBay’s payments processor, meaning merchants selling on the marketplace have to have PayPal accounts to accept funds.

Read more at…

This explains the drop. I have NOT looked at this quarter’s conference call, but this is what CFO John Rainey said at the Deutsche Bank Technology Conference in September about possibly losing eBay as a customer. It will be interesting to see what added color was given on the conference call:

So when we separated from eBay, we had a 5-year agreement with a 1-year wind down, and that was actually a very thoughtful agreement. Again, it was not something that was sort of half-cocked or poorly thought out, and that it allowed us the appropriate amount of time to wean ourselves off of eBay, if you will. And so I’ll give you some numbers for context. In 2016, our overall payment volume that was on eBay was … 17% of our overall payment volume, 22% was revenue, all right? If you look at the rate of decline in those numbers, they have been declining at a commensurate rate of about 300 to 400 basis points per year. And in the most recent quarter, our payment volume on eBay was 14% of our overall payment volume. So if you extrapolate that out over the life of this agreement, you can see that we will be much less reliant on eBay by the end than we are today. So I say that and that I think it’s a very manageable economic outcome. That said, if you look at our most recent quarter, eBay represented, I think, around 4% TPV growth in that period of time. The rest of our business was growing at 28%. So you can see how you can have that effect in terms of the declining reliance on eBay. That said, we absolutely want to continue to partner with eBay.

Ebay’s a big loss, no doubt, but I don’t think it was the future of the company either. I’ll get to the conference call when I can.

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Can we have an updated Motley Fool take on PYPL?