TL;DR: Another solid quarter. Revenue of $4.38B, +19%; non-GAAP EPS up 5% to $0.61 (was negatively impacted $0.15 for strategic investments – e.g. Uber’s and MercadoLibre’s stock prices declined). Good guidance, in-line or above analyst expectations. Shares up ~7% in AH trading.
From the press release:
We had an excellent quarter financially and operationally, reporting 19% revenue growth, more than 200 basis points of operating margin expansion, accelerating TPV growth and nearly 10 million net new active accounts. This quarter we also announced that we will be the first foreign payments platform to be licensed to provide online payment services in China, a very significant development that has the potential to meaningfully expand our addressable market," said Dan Schulman, President and CEO of PayPal.
From https://investor.paypal-corp.com/news-releases/news-release-…
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* 4226
2019 4128 4305 4378
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
2019 0.78 0.86 0.61
*Sale of consumer debt to Synchrony Financial in July 2018
2019 Q3 Earnings
Revenue Growth (billions)
2018 Q3 TTM Revenue = 14.97
2019 Q3 TTM Revenue = 17.04
YOY TTM Revenue Growth = 13.8%, previous quarter 13.3%
EPS Growth (non-GAAP)
2018 Q3 TTM EPS = 2.28
2019 Q3 TTM EPS = 2.94
YOY TTM EPS Growth = 28.9%, previous quarter 34.7%
Non-GAAP P/E (Check Current Price) = 96.64/2.94 =32.9, previously 41.7
Trailing 1YPEG = 32.9/28.9 = 1.14
PayPal Metrics
Here is a look at some of PayPal’s other important metrics growth:
of active accounts: 295M, +16% YOY
Payment transactions: 3.1B, +25% YOY
Payment transactions per active account: 39.8, +9% YOY
Total Payment Volume (TPV): $179B, +25% YOY
Venmo processed $27B TPV, +64% YOY
P2P volume: $51B, +39% YOY, representing 28% of TPV
Free cash flow: $923M, +20% (adjusted for sale of consumer credit portfolio to Synchrony)
Mobile TPV: $77B, +34% YOY, representing 43% of TPV
One Touch: 172M consumers, 13.8M merchants
Transaction margin: 53.4%
Operating margin (non-GAAP): 23.4%
Cash, cash equivalents, and investments: $13.2B
Repurchased 3.26M shares worth about $350M
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
2019 277 286 295
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
2019 2838 2973 3090
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
2019 37.9 39.0 39.8
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
2019 161.49 172.36 178.67
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
2019 54.2 54.8 53.4
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
2019 22.6 23.2 23.4
I read through the conference call, and here are what I thought were the highlights:
Partnerships are driving growth
One thing that PayPal’s management keeps coming back to is how its partnerships are what’s driving growth. throughout the call, management gave several examples, both domestic and international:
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Travelers Insurance announced customers can now receive insurance claim payments via PayPal
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PepsiCo launched its first ever cash back loyalty program powered by Venmo and PayPal
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Lime, the global scooter rental platform selected PayPal to facilitate payouts to its network of freelancers
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Epic Games is now using our capabilities for competitive Fortnite players to expedite their prize payout process
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Launched new consumer installment plans in US and Germany, allowing PayPal customers to pay for purchases with monthly payments.
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Signed a long-term strategic partnership agreement with Citi Australia to develop consumer credit products Australian account holders
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Expanded relationship w/Walmart, PayPal Checkout now sole payment solution for its online grocery business in Mexico
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PayPal one of official partners for the Japanese government’s initiative to promote cashless payments throughout the country
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Amex card members can split a purchase in the Amex app via PayPal or Venmo
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Offer account linking on mobile devices with Capital One and PNC Bank in US
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Launched instant transfer to bank accounts for Venmo customers through partnership w/JPMorgan Chase
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Launched cashback programs with both Chase and Discover
China deal
Of course, the biggest deal was PayPal’s acquisition of a 70% equity interest in GoPay, a license provider of online payment services with the People’s Bank of China. This is huge for the company. CEO Schulman:
This is a very significant development for us and it has the potential to dramatically expand our total addressable market and our long-term growth prospects. The license enables us to expand upon our relationships with existing partners like China Union Pay and AliExpress and forge new partnerships with China’s financial institutions and technology platforms, allowing us to provide a comprehensive set of differentiated payment solutions to businesses and consumers in China and globally.
Our initial focus will be on providing cross-border payment solutions to China’s merchants and consumers, linking China’s commerce ecosystem to PayPal’s vast two-sided network.
Operating margin expansion
If you notice, operating margin continues to creep up, coming in at 23.4% this quarter. In last year’s third quarter, it was 21%. The year before that 20%. Before that 18.4% and before that…well, you get the point. Combined with strong revenue growth, this can be a powerful driver for investment returns. The question has been whether this type of expansion is sustainable. After emphasizing this margin expansion was sustainable, CFO John Rainey gave an example of what was driving this profitable growth:
So we obviously have a significant number of calls that come in each month in our call center, 5 million on average per month. And we aspire to be able to address each of those issues that our customers have and to be on the phone with or not have them have to wait on the phone, but we’re not perfect. And if you go back to last December, we had 33,000 calls that a customer had to wait over 45 minutes. I looked right before I came in here today and in the month of October we have 526 calls. Now that’s a dramatic improvement, but what’s noteworthy about that is we achieved that without adding a single human being to address that problem. Those were all issues around schedule efficiency, better routing when someone goes into the IVR, things like that. It just enables us to provide a better customer experience, but at the same time lower our cost.
And in the scheme of 5 million calls a month, 33,000 is maybe not a lot, but each of those customers has an experience and that impacts whether they use us again, whether they churn in the future.
Another example CEO Dan Schulman gave was Venmo, which before it was making any money, was just a drain. Now that tide is shifting fast. 35% of Venmo customers now engage in a monetized activity on the platform.
See the entire conference call transcript at https://www.fool.com/premium/coverage/earnings/call-transcri…
Those are the highlights and a quick look at the numbers. Any questions/comments/concerns?
Matt
Long PYPL
BlackLine (BL), MasterCard (MA), Ollie’s (OLLI), PayPal (PYPL), and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/TMFCochrane/info.aspx