Wut: PayPal Bullied The Pandy, Here’s The Breakdown

PayPal’s profit tripled in the Q4 as the company polished off what CEO Dan Schulman termed the most dominant quarter in its history, driven by accelerated adoption of digital payments amid the pandy.

PayPal [$PYPL] posted a net income of $1.57 billion, or $1.32 a share, up from $507 million, or 43 cents a share, in the year-earlier period. The company’s GAAP earnings per share for the latest quarter included a 60-cent net gain. On an adjusted basis, PayPal achieved $1.08 a share, which came in ahead of the consensus, which called for $1.00 a share.

PayPal took down $6.12 billion in revenue for its December quarter, up from $4.96 billion, while analysts predicted $6.09 billion. This notches the first period in which PayPal reported upwards of $6 billion in quarterly revenue. The company’s total payment volume, or the value of transactions made across the platform, jumped to $277 billion from $199.4 billion, while analysts were seeking $267.9 billion. Venmo’s TPV rose 60% to $47 billion, while the consensus was for $46.6 billion.

Schulman mentioned that during the busiest moments of the holiday shopping season, PayPal was processing over 1,000 transactions a second. PayPal tacked on 16 million net new active accounts in the latest quarter, bringing its total active accounts to 377 million, including 29 million merchant accounts. Venmo active accounts crept higher 32% to 70 million.

“When you look at kind of the scale or you look at the value proposition [or] the take-up of merchants that’s continuing on into the first quarter, this is clearly a home run for us, and a winner,” Schulman noted on PayPal’s earnings call.

It launched a variety of products toward the end of 2020, including allowing U.S. users to buy, sell, and hold crypto on the platform. What’s more, those customers who bought crypto through PayPal have been logging into their accounts twice as frequently as they did before. Another fairly new offering, a buy-now-pay-later system that lets customers split purchases into either three or four installments, depending on region, brought in $750 million in total payment volume in the latest quarter.

Throughout 2020, PayPal made significant strides in its efforts to grow in-store transactions through features like physical Venmo cards, QR codes, and tap payments. The company now has 600,000 merchants who accept PayPal and Venmo QR codes, including CVS [$CVS], Nike [$NKE] and Five Below [$FIVE].

Roughly 10 million PayPal customers conducted in-store payments through the service in some capacity during 2020, according to Schulman, justifying over $20 billion in total payment volume. “All these new products and services are really transforming PayPal from a checkout solution to a full super-app, or a digital wallet that transcends payments, financial services, and commerce and shopping tools,” he said.

PayPal announced the beginning of China Connect. PayPal says about a quarter of its payments come from outside the U.S. and that 79% of shoppers in the U.S., U.K., Germany, Brazil, China and Australia prefer PayPal as their method of global payment. China is a rapidly expanding market, and China Connect will help further PayPal’s cross-border trade initiatives there.

In Q1, PayPal forecasts its revenue to grow 28% at current rates, or 26% on a currency-neutral basis. The company also surmises an adjusted EPS growth of about 50%. Looking at the whole of 2021, PayPal anticipates TPV growth in the high 20% range. The company models revenue growth of 19% at current rates and 17% on a currency-neutral basis to about $25.5 billion. It also expects 17% growth in adjusted earnings per share and 50 million net new active accounts for the year.

Consensus called for $1.15 trillion in total payment volume, $25.43 billion in revenue, and $3.12 a share in adjusted earnings for the full year. PayPal’s earnings outlook for 2021 accounts for “ongoing elevated levels of organic investment” in the business as the company tries to capitalize on a period in which CFO John Rainey argues that “the structural tailwinds for PayPal have never been stronger.”

Wolfe Research analyst Darrin Peller added that the expectation for 50 million net new active accounts came in easily above his prior estimate for 35 million, illustrating a “new norm” for the company. “We see the guidance as key given concerns among some investors that the [over 70 million] added in 2020 was a pull-forward and would cause a material retrenchment in 2021,” he wrote, while reiterating an outperform rating on the stock.

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