TL;DR: I think it looks like a fine quarter, but I’ll know more after going through the conference call obviously. For now, shares are down about 4% in AH trading due to “weak guidance.” We’ll get to the alleged weak guidance, but first let’s tackle the numbers. From the Street:
PayPal Holdings Inc. (PYPL - Get Report) shares fell Wednesday in after-hours trading, after the payments company reported earnings that beat expectations, but revenue that slightly missed estimates. The stock was falling 4.49% to $88.27 a share in postmarket trading, after having risen 1.43% during the regular session.
PayPal reported adjusted earnings-per-share of 69 cents, beating Wall Street’s estimates of 66 cents. GAAP EPS was 49 cents, beating estimates of 45 cents. Revenue came in at $4.23 billion, just missing analysts estimates of $4.24 billion. Net income was $584 million.
From https://www.thestreet.com/markets/paypal-falls-after-posting…
In the press release, CEO Dan Schulman states:
In 2018 we set new benchmarks for the company for revenue, net new active accounts and engagement across our platform. We launched new products, strengthened existing relationships, and entered into new strategic partnerships with some of the biggest and most influential global brands in technology, retail, and finance. We greatly expanded our global reach, serving 267 million customer accounts, including 21 million merchant accounts. We believe 2019 will be another strong year for us, and we intend to build on our strengths to extend our leadership as the leading open digital payments platform.
Read the entire press release at https://investor.paypal-corp.com/news-releases/news-release-…
Now 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* 4226
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 0.69
*Sale of consumer debt to Synchrony Financial in July 2018
Special revenue note: Consumable credit sale to Synchrony last year negatively affected revenue by about 7%
2018 Q4 Earnings (Current)
Revenue Growth (billions)
2017 Q4 TTM Revenue = 13.1
2018 Q4 TTM Revenue = 15.45
YOY TTM Revenue Growth = 17.9%, previous quarter 21.4%
EPS Growth (non-GAAP)
2017 Q4 TTM EPS = 1.91
2018 Q4 TTM EPS = 2.42
YOY TTM EPS Growth = 26.7%, previous quarter 28.1%
Non-GAAP P/E (Check Current Price) = 92.42/2.42 = 38.2
Trailing 1YPEG = 38.2/26.7 = 1.43
PayPal Metrics
Here is a look at some of PayPal’s other important metrics growth:
of active accounts: 267M, +17% YOY
Payment transactions: 2.87B, +28% YOY
Payment transactions per active account: 36.9, +9% YOY
Total Payment Volume (TPV): $164B, +25% YOY
Mobile Payment Volume: $67B, +40% YOY, 41% of TPV
Transaction margin: 54.6%
Operating margin (non-GAAP): 22.0%
Venmo processed $19B TPV, +80% YOY
Cash and cash equivalents: $10.1B
Short term borrowings: $2.0B
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 237 244 254 267
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 2867
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 36.9
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 132.36 139.40 143.00 163.65
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 54.6
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 22.0
Quick thoughts
Venmo continues to grow like gangbusters. Revenue up 13%, adjusted EPS up 26%, and active accounts and user engagement continues to show strong growth. Lots to like! I wouldn’t be surprised to hear in the coming days and weeks concerns about the transaction margin creeping down. I am not concerned by this. For starters, operating margin increased sequentially and held steady from a year ago. That’s strong. Second, PayPal’s strategy since making partnerships with the other major players in finance has to increase total revenue and earnings, knowing full well it would lead to a slight decline in margins. For investors, that should be a perfectly acceptable trade-pff and, thus far, it has paid off handsomely.
As far as guidance, PayPal is guiding 2019 for 16% - 17% revenue growth, which is negatively impacted 3.5% from credit portfolio sale to Synchrony. Management expects adj EPS to come in between $2.84 and $2.91. I will not be surprised to see this raised, but let’s work with the midpoint ($2.88) of this range. That would be 19% growth and be a P/E ratio of about 32. Remember, that includes dilution of about $0.10 from the acquisitions it made this year too. I’m very comfortable with this valuation and guidance but, again, I think this number will be an easy target.
Questions/comments/concerns? Leave it below!
Matt
Long PYPL
Phoenix 1 Contributor
MasterCard (MA), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx