PayPal Holdings Inc (NASDAQ:PYPL) announced results for the first quarter endedMarch 31, 2016. For the quarter, PayPal gained market share, expanded its customer base, deepened engagement with merchants and consumers and delivered on its financial commitments.
Financial highlights for the first quarter include:
- Revenue growth of 19% to $2.544 billion, or 23% on a foreign currency neutral (FX-neutral) non-GAAP pro forma basis
- GAAP operating margin of 16%, up 90 basis points, non-GAAP operating margin of 21%, down 70 basis points on a pro forma basis
- GAAP earnings per diluted share (EPS) growth of 43% to $0.30, non-GAAP EPS growth of 28% on a pro forma basis to $0.37
- Operating cash flow of $738 million, free cash flow of $605 million
- Repurchased 17 million shares of common stock at an average price of $35
Operating highlights for the first quarter include:
- 4.5 million active customer accounts added, ending the quarter with 184 million
- 1.4 billion transactions processed, up 26%
- 28 payment transactions per active account on a trailing twelve month basis, up 12%
- $81 billion in total payment volume (TPV), up 31% on an FX-neutral basis
“Our first quarter results continue to demonstrate the power of our global payments platform to attract and engage consumers, increasing our global scale and in turn attracting new merchants and partners to PayPal,” said Dan Schulman, President and CEO of PayPal. “Our focus on payments and ability to innovate for merchants and consumers continues to differentiate PayPal and drive our growth in a dynamic and competitive environment.”
Gaining Market Share and New Merchant Customers
In the first quarter, PayPal gained market share and extended its leadership position. PayPal processed $81 billion in TPV, representing FX-neutral growth of 31%, which was faster than the growth rate of e-commerce. Merchant services TPV growth accelerated to 39% on an FX-neutral basis, and represented 82% of overall TPV for the quarter.PayPal processed $21 billion in mobile payment volume, up 54%, representing 26% of TPV for the quarter. Venmo, the company’s social payments platform, processed $3.2 billion of TPV, up 154% year-over-year.
PayPal added powerful new merchants to the platform, ending the quarter with more than 14 million active merchant accounts. The list of leading brands choosing PayPal now includes Air France, Crate and Barrel, Fresh Direct, Panera Bread, Sephora, and Woolworths in Australia. PayPal extended its partnership with Alibaba Wholesaler during the quarter to include new countries and additional merchants.
Expanding PayPal’s Customer Base and Deepening Engagement
As PayPal continues to grow larger and more relevant in customers’ daily lives, the company demonstrated another strong quarter of customer acquisition, adding new consumers and merchants to the platform. The company grew its active account base by 4.5 million in the first quarter, ending the quarter with 184 million active customer accounts.
Consumers and merchants are engaged at higher levels than ever before. In the first quarter, the company processed 1.4 billion payment transactions, which translates to 28 payment transactions per active account, an increase from 25 transactions per active account in the same period last year.
Launching Innovative Products
PayPal continues to roll out the Pay with Venmo pilot. Early customer feedback has validated the demand for Venmo as a way to pay in apps that millennials use, and PayPalplans to make the product more available to merchants and consumers later this year.
PayPal expanded its One Touch product to an additional 121 markets, making it available in 144 markets. One Touch is one of the most rapidly adopted products launched byPayPal, with approximately 21 million consumers having opted-in globally and over 1 million merchants having enabled One Touch.
The company launched PayPal Commerce, a set of contextual commerce tools, which are currently in beta, that allows merchants to securely sell across email, social shares, blogs, articles, ads, in-page, in-app and anywhere consumers are online or on their mobile devices.
PayPal launched its new mobile app simultaneously in 145 markets with a simpler and more personal experience for consumers. The company celebrated the tenth anniversary of PayPal revolutionizing and transforming mobile payments. Over the past decade, PayPal processed $175 billion in mobile TPV, demonstrating the company’s role as a driving force in making money more available and accessible via mobile devices.
Extending Our Global Reach
PayPal continued integrating Xoom into its payments platform, accelerating growth in the global remittances market. Xoom has expanded its services to 11 more countries, with two additional countries coming soon. The 13 new countries will include markets like Haiti, Nigeria and Slovakia. Xoom also announced an integration with M-Pesa in Kenya.Xoom is a leader in mobile remittances with more than two-thirds of transactions happening on mobile devices.
PayPal announced a partnership during the quarter with one of Europe’s largest mobile carriers, Vodafone, that will allow millions of PayPal’s European customers to fund payments on Android smartphones at Visa contactless terminals using the Vodafone Wallet. The experience is now live in its first market, Spain.
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|First Quarter 2016 Financial Highlights|| || |
| || || |
| || ||First Quarter|
|(presented in millions, except per share data and percentages)|| || || ||FX-Neutral YoY|
| ||2016|| ||2015|| ||YoY Growth|| ||Growth|
|Total Payment Volume (TPV)|| ||$81,056|| ||$63,021|| ||$18,035|| ||29%|| ||31%|
|GAAP|| || || || || || || || || || |
|Net revenues|| ||$2,544|| ||$2,137|| ||$407|| ||19%|| ||23%|
|Net income|| ||$365|| ||$255|| ||$110|| ||43%|| ||N/A|
|Earnings per diluted share|| ||$0.30|| ||$0.21|| ||$0.09|| ||43%|| ||N/A|
|Non-GAAP Pro Forma|| || || || || || || || || || |
|Net revenues|| ||$2,544|| ||$2,134|| ||$410|| ||19%|| ||23%|
|Net income|| ||$452|| ||$353|| ||$99|| ||28%|| ||N/A|
|Earnings per diluted share|| ||$0.37|| ||$0.29|| ||$0.08|| ||28%|| ||N/A|
| || || || || || || || || || || |
Other Selected Financial and Operational Results
Operating Margin – GAAP operating margin for the first quarter of 2016 increased to 16.0%, compared to 15.1% for the same period last year. Non-GAAP operating margin decreased to 21.1%, compared to non-GAAP pro forma operating margin of 21.8% for the same period last year.
Taxes – The GAAP effective tax rate for the first quarter of 2016 was 13.5%, compared to 20.6% for the first quarter of 2015. The non-GAAP effective tax rate was 18.1%, compared to the non-GAAP pro forma effective tax rate of 23.9% for the first quarter of 2015.
Cash Flow – PayPal generated $738 million of operating cash flow and $605 million of free cash flow during the first quarter of 2016.
Cash and Cash Equivalents and Investments – PayPal’s cash and cash equivalents and investments totaled $6.4 billion at March 31, 2016.
2016 Financial Guidance
Full Year 2016
- PayPal reiterates full year 2016 guidance.
- PayPal expects net revenues to grow 16% – 19% on an FX-neutral basis, and 14% – 16% at current spot rates to a range of $10.5 to $10.7 billion. PayPal anticipates that currency will be an approximate 3 point headwind on net revenues.
- PayPal expects GAAP earnings per diluted share in the range of $1.09 – $1.14 and non-GAAP earnings per diluted share in the range of $1.45 – $1.50.
- Estimated non-GAAP amounts above for the twelve months ending December 31, 2016, reflect adjustments of approximately $585 – $615 million in the aggregate that primarily exclude estimates of the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets.
Second Quarter 2016
- PayPal expects net revenues to grow 16% – 18% on an FX-neutral basis, and 12% – 14% at current spot rates to a range of $2.570 to $2.620 billion. PayPal anticipates that currency will be an approximate 4 point headwind on net revenues. As previously disclosed, PayPal expects an approximate 6 point decline in revenue growth from the first quarter to the second quarter of 2016, primarily as a result of the revenue recognized in the second quarter of 2015 from the sale of a portion of its credit receivables and its amended agreement with Synchrony Financial in 2015.
- PayPal expects GAAP earnings per diluted share in the range of $0.25 – $0.27 and non-GAAP earnings per diluted share in the range of $0.34 – $0.36.
- Estimated non-GAAP amounts above for the three months ending June 30, 2016, reflect adjustments of approximately $150 – $170 million in the aggregate that primarily exclude estimates of the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets. (Original Source)
Shares of Paypal are up nearly 2% to $40.91 in after-hours trading. PYPL has a 1-year high of $42.55 and a 1-year low of $30. The stock’s 50-day moving average is $39.25 and its 200-day moving average is $36.33.
On the ratings front, Paypal has been the subject of a number of recent research reports. In a report issued on April 25, Piper Jaffray analyst Gene Munster reiterated a Sell rating on PYPL, with a price target of $33, which represents a potential downside of 16.8% from where the stock is currently trading. Separately, on April 21, Jefferies Co.’s Jason Kupferberg maintained a Buy rating on the stock and has a price target of $48.
According to TipRanks.com, which ranks over 7,500 financil analysts and bloggers to gauge the performance of their past recommendations, Gene Munster and Jason Kupferberg have a total average return of 18.9% and 15.3% respectively. Munster has a success rate of 63.5% and is ranked #4 out of 3829 analysts, while Kupferberg has a success rate of 83.3% and is ranked #88.
The street is mostly Bullish on PYPL stock. Out of 19 analysts who cover the stock, 11 suggest a Buy rating , 7 suggest a Hold and one recommends to Sell the stock. The 12-month average price target assigned to the stock is $41.81, which implies an upside of 5.4% from current levels.
PayPal Holdings, Inc. operates as a holding company of PayPal, Inc. It engages in the digital and mobile payments on behalf of consumers and merchants worldwide. The company accepts payments from merchant websites, mobile devices, and applications; and at offline retail locations through payment solutions across its payments platform, including PayPal, PayPal Credit, Venmo and Braintree products. The company was founded in January 2015 and is headquartered in San Jose, CA.