PayPal Holdings, Inc. (NASDAQ:PYPL) announced strong third quarter results for the period ended September 30, 2016. For the quarter, PayPal deepened engagement on its platform, advanced its commitment to customer choice, gained share, continued its strong momentum in mobile payments, expanded its customer base and delivered innovative products.
“We are pleased to have delivered another quarter of strong results. The opportunities for PayPal to grow and gain share have never been greater. We are executing against our strategic plan with intensity and speed, and we are committed to seizing the opportunities in front of us by truly embracing the mantle of “Customer Champion.” We are further expanding the ubiquity and value of the PayPal brand and moving deliberately towards achieving our vision of becoming an everyday, essential financial service for people around the world,” said Dan Schulman, President and CEO of PayPal.
Advancing Customer Choice and Increasing Customer Engagement
PayPal continues to improve the customer experience on its platform by providing differentiated value to both consumers and merchants. In the quarter, PayPal made meaningful progress in offering customer choice in its online and mobile checkout experiences to enhance how customers in the U.S. can send money, shop, and pay withPayPal. These customers are now able to set their preferred funding type in their PayPal Wallet to sources other than their PayPal balance, giving them the option to pay by default with their favorite debit card, credit card, or bank account.
In the third quarter, the company processed 1.5 billion payment transactions, which translates to 30 payment transactions per active account on a trailing twelve months basis, a 13% increase from a year ago. Customers are engaged at higher levels than ever before. PayPal’s focus on customer choice is designed to deliver exceptional customer experiences to increase engagement on the PayPal platform.
The move to customer choice is also allowing PayPal to forge valuable, new strategic partnerships across the ecosystem. During the quarter, PayPal announced major agreements with Visa and Mastercard. In addition, as an extension of previous agreements with Alibaba, PayPal launched the first stages of becoming a payment option on Alibaba’s global retail marketplace, AliExpress.
Gaining Market Share and Growing Mobile Payments
In the third quarter, PayPal gained market share and extended its leadership position. PayPal processed $87 billion in TPV, representing growth of 25%, or 28% on an FX-neutral basis, which was faster than the growth rate of e-commerce. Merchant Services TPV grew 32%, or 34% on an FX-neutral basis, and represented 84% of overall TPV for the quarter. PayPal processed nearly $26 billion in mobile payment volume, up 56%, representing 29% of TPV for the quarter. Venmo, the company’s social payments platform, processed $4.9 billion of TPV, up 131%.
PayPal added notable new merchants to the platform, ending the quarter with 15 million active merchant accounts. The list of leading brands choosing PayPal now includes H&M in four European countries, Costco de Mexico, Yelp, and Yandex Direct.
PayPal demonstrated another strong quarter of customer acquisition, adding new consumers and merchants to the platform. The company grew its active customer accounts by 11%, ending the quarter with 192 million active customer accounts.
Delivering Innovative Product Experiences – One Touch and Xoom
As of the third quarter, more than 32 million active consumer accounts and four million active merchant accounts have opted in to One Touch. By the end of 2016, PayPalexpects more than five million active merchant accounts to be offering One Touch to more than 36 million active consumer accounts.
PayPal will also now allow customers to link their PayPal and Xoom accounts, giving PayPal customers access to their funding sources within Xoom. PayPal’s U.S. customers will be able to send funds to 10 new markets and get access to new services in the more than 50 countries that Xoom supports. Xoom also recently added a “request” feature, allowing remittances to become a two-way interaction between senders and receivers for the first time with Xoom.
Other Selected Financial and Operational Results
Operating Margin – GAAP operating margin for the third quarter of 2016 decreased to 13.0%, compared to 14.6% for the same period last year. Non-GAAP operating margin decreased to 18.4%, compared to non-GAAP operating margin of 19.9% for the same period last year.
Taxes – The GAAP effective tax rate for the third quarter of 2016 was 10.3%, compared to 14.0% for the third quarter of 2015. The non-GAAP effective tax rate was 15.3%, compared to the non-GAAP effective tax rate of 17.7% for the third quarter of 2015.
Cash Flow – PayPal generated $801 million of operating cash flow and $618 million of free cash flow during the third quarter of 2016.
Cash, Cash Equivalents and Investments – PayPal’s cash, cash equivalents and investments totaled $6.4 billion at September 30, 2016.
2016 Financial Guidance
Full Year 2016
- PayPal expects full year 2016 revenue in the range of $10.780 to $10.850 billion.
- PayPal expects revenue to grow 17% at current spot rates and 20% on an FX-neutral basis.
- PayPal expects GAAP earnings per diluted share in the range of $1.13 – $1.15 and non-GAAP earnings per diluted share in the range of $1.48 – $1.50.
- Estimated non-GAAP amounts above for the twelve months ending December 31, 2016, reflect adjustments of approximately $580 – $600 million, primarily including the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets.
Fourth Quarter 2016
- PayPal expects revenue to grow 14% – 17% at current spot rates and 16% – 19% on an FX-neutral basis, to a range of $2.920 to $2.990 billion.
- PayPal expects GAAP earnings per diluted share in the range of $0.30 – $0.32 and non-GAAP earnings per diluted share in the range of $0.40 – $0.42.
- Estimated non-GAAP amounts above for the three months ending December 31, 2016, reflect adjustments of approximately $150 – $170 million, primarily including the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets.
Guidance for full year 2016 revenue growth rates represent year-over-year comparisons versus non-GAAP pro forma measures. Please see “Non-GAAP Financial Measures” and “Non-GAAP Measures of Financial Performance” for important additional information. (Original Source)
Shares of Paypal are up nearly 4% to $41.60 in after-hours trading. PYPL has a 1-year high of $41.75 and a 1-year low of $30.52. The stock’s 50-day moving average is $39.63 and its 200-day moving average is $38.47.
On the ratings front, Paypal has been the subject of a number of recent research reports. In a report issued on October 18, Evercore ISI analyst David Togut initiated coverage with a Buy rating on PYPL and a price target of $46, which represents a potential upside of 14.3% from where the stock is currently trading. Separately, on October 17, Mizuho’s Neil Doshi reiterated a Buy rating on the stock and has a price target of $46.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, David Togut and Neil Doshi have a total average return of 16.2% and 13.2% respectively. Togut has a success rate of 84% and is ranked #479 out of 4180 analysts, while Doshi has a success rate of 68% and is ranked #213.
The street is mostly Bullish on PYPL stock. Out of 29 analysts who cover the stock, 18 suggest a Buy rating , 9 suggest a Hold and 2 recommend to Sell the stock. The 12-month average price target assigned to the stock is $45.44, which represents a potential upside of 13% from where the stock is currently trading.
PayPal Holdings, Inc. enables digital and mobile payments on behalf of consumers and merchants worldwide. It provides a simpler and safer way for businesses of all sizes to accept payments from merchant websites, mobile devices and applications, and at offline retail locations through a range of payment solutions. It also facilitates person to person payments through PayPal, Venmo, and Xoom.