Paypal Holdings Inc (PYPL) Announces Q1:17 Results, Increases Guidance for Full Year; Shares Rise


Paypal Holdings Inc (NASDAQ:PYPL) announced first quarter results for the period ended March 31, 2017.

Financial highlights for the first quarter include:

  • Revenue growth of 17% to $2.975 billion, or 19% on a foreign currency neutral (FX-neutral) basis
  • GAAP operating margin down 150 basis points to 14.5% and non-GAAP operating margin expanded 50 basis points to 21.6%
  • GAAP earnings per diluted share (EPS) growth of 6% to $0.32, non-GAAP EPS growth of 19% to $0.44
  • Operating cash flow of $751 million, free cash flow of $603 million
  • $517 million returned to stockholders through stock repurchases

Operating highlights for the first quarter include:

  • 6.0 million active customer accounts added, ended the quarter with 203 million active customer accounts, including 16 million merchant accounts
  • 1.7 billion payment transactions, up 23%
  • 32 payment transactions per active account on a trailing twelve months basis, up 12%
  • $99 billion in total payment volume (TPV), up 23%, or 25% on an FX-neutral basis

“With another quarter of strong financial results, we continue to deliver on our vision to democratize financial services for our consumers and drive the global transition from cash to digital payments,” said Dan Schulman, President and CEO of PayPal. “We are deepening our merchant offerings and relationships, and expanding our network of strategic partnerships to make PayPal more available in new contexts and new markets.”

Returning Value to Stockholders with Stock Repurchase

PayPal announced today that its board of directors has authorized a new stock repurchase program, under which the company may repurchase up to $5 billion in outstanding common stock. This program will become effective after completion of the company’s January 2016 stock repurchase program. As of March 31, 2017, approximately $488 million remained available for stock repurchases under this prior authorization.

Strategic Partnerships

PayPal recently announced an expansion of its relationship with Google. PayPal will be available in the Android Pay wallet in the United States and accepted as a way to pay at the millions of retailers that accept Android Pay at the point of sale.

In addition, PayPal announced a partnership agreement with Wells Fargo, adding another issuer to the companies working with PayPal and expanding its services at the point of sale. PayPal also extended its partnership with Visa into the Asia-Pacific region.

Expanding Value Proposition through Product Innovation

PayPal’s mobile-first approach to product development is driving increasing engagement across the platform. In the quarter, 32% of payment volume came through a mobile device and mobile payment volume increased 51% over the same period last year to approximately $32 billion. In addition, Venmo, the company’s social payments platform, processed $6.8 billion of TPV, more than doubling its volume versus the first quarter of 2016.

PayPal finished the quarter with more than 53 million consumer accounts opted in to One Touch. In addition, more than five million merchant customers and 75% of the Internet Retailer 100 now offer One Touch on their mobile and desktop shopping experiences.

In the first quarter, PayPal announced its agreement to acquire TIO Networks Corp. (“TIO”) for approximately $233 million. TIO is a leading multi-channel bill payment processor in North America and processed more than $7 billion in bill payments in its fiscal 2016. The company’s digital platform, and physical network of agent locations make paying bills simpler, faster, and more affordable. By integrating bill payment, PayPal will add another key service to its global payments platform and become a greater part of its consumers’ everyday financial lives. On April 10, 2017 shareholders of TIO approved the acquisition, which is expected to close in the second half of 2017, subject to certain closing conditions.

(1) First quarter 2017 GAAP operating margin was impacted by $40 million of restructuring charges.
** Not meaningful.

Cash, Cash Equivalents and Investments – PayPal’s cash, cash equivalents and investments totaled $6.4 billion as of March 31, 2017.

2017 Financial Guidance

Full Year 2017 Revenue and Earnings Raised

  • PayPal expects revenue to grow 15 – 17% at current spot rates and 17 – 19% on an FX-neutral basis, to a range of $12.520 – $12.720 billion.
  • PayPal expects GAAP earnings per diluted share in the range of $1.28 – $1.33 and non-GAAP earnings per diluted share in the range of $1.74 – $1.79.
  • Estimated non-GAAP amounts above for the twelve months ending December 31, 2017, reflect adjustments of approximately $800 – $840 million, primarily representing estimated stock-based compensation expense and related employer payroll taxes in the range of $660 – $690 million.

Second Quarter 2017

  • PayPal expects revenue to grow 15% – 17% at current spot rates and 17% – 19% on an FX-neutral basis, to a range of $3.050 – $3.100 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 $0.41 – $0.43.
  • Estimated non-GAAP amounts above for the three months ending June 30, 2017, reflect adjustments of approximately $205 – $220 million, primarily representing estimated stock-based compensation expense and related employer payroll taxes in the range of $180 – $190 million.

Shares of Paypal are up nearly 6% to $47.10 in after-hours trading Wednesday. PYPL has a 1-year high of $45.04 and a 1-year low of $34. The stock’s 50-day moving average is $43.04 and its 200-day moving average is $41.29.

On the ratings front, PYPL has been the subject of a number of recent research reports. In a report issued on April 20, Stifel analyst Scott Devitt reiterated a Buy rating on the stock, with a price target of $49, which implies an upside of 9% from current levels. On April 12, Credit Suisse’s Paul Condra reiterated a Buy rating on PYPL and has a price target of $47.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Scott Devitt and Paul Condra have a yearly average return of 19% and 6.7% respectively. Devitt has a success rate of 74% and is ranked #83 out of 4571 analysts, while Condra has a success rate of 74% and is ranked #1199.

Sentiment on the street is mostly bullish on PYPL stock. Out of 12 analysts who cover the stock, 11 suggest a Buy rating and one recommends to Hold the stock. The 12-month average price target assigned to the stock is $48.10, which represents a potential upside of 7% 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.

 

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