PayPal Reports 2018 Q3 Earnings

Investment Analysis Clubs Saul’s Investing Discussions
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One word: Solid. Quarter after quarter this company just continues to deliver solid, consistent growth. Revenue growth of 14% to $3.68 billion (impacted negatively by about 7% from sale of consumer credit portfolio to Synchrony Financial). GAAP EPS of $0.36, increasing 17%; non-GAAP EPS of $0.58, increasing 26%. Shares were up about 7.5% in AH trading. From the press release:

“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.

See the entire release at https://investor.paypal-corp.com/releasedetail.cfm?ReleaseID…

The big news of the quarter was a partnership with American Express, one of the few obvious missing companies from the long list of partners PayPal has made with financial institutions and merchants over the last two years.

American Express (NYSE: AXP) and PayPal (NASDAQ: PYPL), today announced an expanded strategic partnership that will improve the digital payments experience for U.S. American Express Card Members paying with PayPal and Venmo. The companies will work closely on a host of solutions for joint customers to include the use of Membership Rewards points for PayPal purchases and an integrated peer-to-peer payment experience. As part of the agreement, both companies will also explore additional innovative digital products and experiences.

Read more at https://about.americanexpress.com/press-release/brand/americ…

Let’s take a look at the numbers:


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
2018					3685		3857		3683*

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
2018					0.57		0.58		0.58

*Sale of consumer debt to Synchrony Financial in July 2018

2018 Q3 Earnings (Current)

Revenue Growth (billions)
2017 Q3 TTM Revenue = 12.33
2018 Q3 TTM Revenue = 14.97
YOY Revenue Growth = 21.4%, previous quarter 23.6%

EPS Growth (non-GAAP)
2017 Q3 TTM EPS = 1.78
2018 Q3 TTM EPS = 2.28
YOY EPS Growth = 28.1%, previous quarter 29.3%

Non-GAAP P/E (Check Current Price) = 77.48/2.28 = 33.98

Trailing 1YPEG = 33.98/28.1 = 1.21

PayPal Metrics

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

of active accounts: 254M, +15% YOY

Payment transactions: 2.463B, +27% YOY
Payment transactions per active account: 36.5, +9% YOY
Total Payment Volume (TPV): $143B, +24% YOY
Mobile Payment Volume: $57B, +45% YOY
Transaction margin: 54.9%
Operating margin (non-GAAP): 21.0%
Venmo processed $17B TPV, +78% YOY
Cash and cash equivalents: $10.5B
Short term borrowings: $2.0B
Repurchased approx. $600M in Q3, $3B YTD

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
2018					237		244		254

Payment Transactions (millions)	        Q1		Q2		Q3		Q4
2014					918		930		972		1144
2015					1123		1161		1216		1428
2016					1414		1448		1512		1755
2017					1771		1817		1941		2240
2018					2214		2327		2463

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
2018					34.7		35.7		36.5

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
2018					132.36		139.40		143.00

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
2018					57.1		56.0		54.9

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
2018					22.5		21.3		21.0

Like I said, looks like another real solid quarter but I will be back with a more detailed look at the quarter after reviewing the conference call.

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

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Its interesting to find in the CC that there is a lot of evidence of a strong network effect in the Q&A section.

It also seems to me that the 1% fee venmo instant transfers will slow down the outflow of money from venmo accounts (given the initial backlash on social media) - This should give people a reason to leave the money in the venmo account and more reason to use that money and pay with venmo.

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Thanks Matt!

I’ve been a happy PayPal holder since I initially got shares from old Ebay holdings that I had (no longer have Ebay, but have increased my PayPal holdings).

All I know is I choose PayPal anytime it’s an option purchasing online, as it’s so much easier (and safer, I believe) than putting in my CC info each time. And Venmo is just huge for the newer generation, I have 3 kids (late teens to early 20s), and that’s all they use if they have a choice.

I also use Apple Pay anytime I can while at a physical location, again, ease and safety, I just double click a button on my watch and in 1-2 seconds it’s done, without doing anything (pull out wallet, CC, swiping, signing, put it all away, etc).

My point being, once people give it a try, and get used to the new payment tech, there’s no going back, companies in this space are only going to grow!

Long PYPL, SQ, AAPL, TWLO, etc

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All I know is I choose PayPal anytime it’s an option purchasing online, as it’s so much easier (and safer, I believe) than putting in my CC info each time.

Ditto! So much easier and safer! And it’s not just us, Foodles. Retailers love PayPal because its sales conversion rate is far higher than other payment methods. When PayPal is selected by customers as the method of payment at an online checkout, that sale is converted within the same browsing session 88.7% of the time. When other payment methods are selected at checkout, the sale is converted an average of 48.7% of the time. One Touch, the platform that allows customers to buy something from a registered device with just “one” click, scores a rating of “Good” or better from 99% of customers and 55% said they only made some online purchases because One Touch was an option. That’s all according to comScore, a 3rd party research firm.

I would also argue PayPal’s “true” growth is being hidden by its legacy eBay business (which will be going away in a few years) and the selling of its US consumer credit portfolio to Synchrony.

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

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