Paypal Holdings Inc (NASDAQ:PYPL) reported revenue and earnings that exceeded the company’s full year guidance, posting strong payment volume, customer account and revenue growth. PayPal’s Board of Directors authorized a $2 billion stock repurchase program, demonstrating the business’ substantial cash flow generation and management’s confidence in long-term growth.
Results for the fourth quarter include:
- Revenue of $2.6 billion and growth of 17%, including 1 point from the acquisition of Xoom
- Revenue growth of 21% on a foreign currency neutral (FX-neutral) non-GAAP pro forma basis
- GAAP operating margin up 20 basis points to 16%, non-GAAP operating margin up 90 basis points to 21% on a pro forma basis
- 28% GAAP earnings per diluted share (EPS) growth to $0.30 and 27% non-GAAP pro forma EPS growth to $0.36
Results for full year 2015 include:
- Revenue of $9.2 billion and growth of 15%
- Revenue growth of 19% on an FX-neutral non-GAAP pro forma basis
- GAAP operating margin flat at 16%, non-GAAP operating margin up 90 basis points to 21% on a pro forma basis
- 192% GAAP EPS growth to $1.00 and 19% non-GAAP pro forma EPS growth to $1.28
“We exited 2015 with great momentum,” said Dan Schulman, President and CEO of PayPal. “Our strong results reflect PayPal’s progress in delivering on our strategy to drive the digital payments revolution. In the face of a slow global economy and foreign exchange headwinds, PayPal exceeded its full year revenue, earnings, and free cash flow commitments to shareholders. As money becomes digital and the world goes mobile, we see tremendous opportunity ahead to expand our leadership, transform the way people move and manage their money and deliver increased value to shareholders.”
| ||Full Year 2015|| ||Full Year 2015|
| || ||Guidance|| ||Results*|
|Non-GAAP Pro Forma FX-Neutral Revenue Growth Year-Over-Year|| ||15 – 18%|| ||19%|
|Non-GAAP Pro Forma Operating Margin Growth Year-Over-Year|| ||Up 0 – 100 basis points|| ||Up 90 basis points|
|Non-GAAP Pro Forma EPS and Growth Year-Over-Year|| ||$1.23 – $1.2715% – 19%|| ||$1.2819%|
|Free Cash Flow|| ||$1.6 – $1.8B|| ||$1.8B|
| *For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see the tables that follow “Non-GAAP Measures of Financial Performance.”|
Returning Value to Shareholders with Share Repurchase
PayPal also announced that its board of directors has authorized a new share repurchase program, under which the company may repurchase up to $2 billion in outstanding common stock.
“We have proven our ability to generate cash, and this share repurchase authorization demonstrates our confidence in our strategic plan and long-term growth,” said John Rainey, Chief Financial Officer of PayPal.
Gaining Market Share
In the fourth quarter, PayPal gained market share and extended its leadership position. PayPal processed $82 billion in total payment volume (TPV), representing FX-neutral growth of 29%, which was faster than the growth rate of e-commerce. Merchant services TPV growth accelerated to 36%, and represented 81% of overall TPV for the quarter. Finally, PayPal processed $20 billion in mobile payment volume, up 45%, representing 25% of TPV for the quarter.
Expanding PayPal’s Customer Base
Throughout the holiday season, customers and merchants signed up for the company’s products and services in record numbers. The company grew its active account base by 6.6 million in the fourth quarter, ending the year with 179 million active customer accounts.
Deepening and Extending PayPal’s Engagement with Customers
The company is extending how consumers are able to manage and move money and driving engagement with PayPal’s merchant base by giving them solutions to propel their businesses forward and connect with their customers in new and powerful ways. In the fourth quarter, the company processed 1.4 billion payment transactions, which translates to 27 payment transactions per active account, an increase from 25 transactions per active account compared to the same period last year. Venmo, the company’s social payments platform, processed $2.5 billion of TPV, up 174% year-over-year.
During the fourth quarter, PayPal closed the acquisition of Xoom Corporation to help accelerate its growth in the global remittances market with a leading mobile innovator in this space. Xoom added 1 point to revenue growth in the fourth quarter and 1.6 million active customer accounts to the PayPal platform.
PayPal expanded its technology platform, and further solidified its role as the operating system for digital payments worldwide, by signing business deals with new partners, including First Data, Alibaba Wholesale, and Facebook Messenger, giving PayPal expanded opportunities to increase customer engagement and gain market share.
PayPal signed a strategic agreement with First Data to enable the acceptance of PayPal’s tokenized payments in-store by First Data’s acquiring clients and businesses. This is an important step forward in driving availability of PayPal at the point-of-sale as First Data is the largest U.S. merchant processor, with approximately 40% market share.
In the fourth quarter, PayPal extended its existing business relationship with Alibaba.com by launching a limited pilot program to accept PayPal payments for select vendors who sell on Alibaba Wholesale, the B2B section of Alibaba’s website.
In December, PayPal announced Braintree is powering the commerce experience for transportation services, including Uber, on the Facebook Messenger platform. With this new feature, users can request a ride from a car service without ever needing to download an extra app or leave a conversation.
PayPal also expanded the ways to use the popular social payments app Venmo by introducing the ability for Venmo users to make in-app purchases at participating merchants in the U.S. Now in limited release, select users can use Venmo to pay for concert and sports tickets on Gametime, and gourmet meals delivered on Munchery. The pilot program will gradually open to more consumers and merchants with a general public launch planned for later this year.
Fourth Quarter 2015 Financial Highlights
| || ||Fourth Quarter|
| || || || || || || || || || || || ||FX-Neutral YoY|
|(presented in millions, except per share data and percentages)|| || ||2015|| || ||2014|| || ||YoY Growth|| || ||Growth|
|Total Payment Volume (TPV)|| || ||$81,523|| || ||$66,039|| || ||$15,484|| || ||23%|| || ||29%|
|GAAP|| || || || || || || || || || || || || || || |
|Net revenue|| || ||$2,556|| || ||$2,193|| || ||$363|| || ||17%|| || ||21%|
|Net income|| || ||$367|| || ||$286|| || ||$81|| || ||28%|| || ||N/A|
|Earnings per diluted share|| || ||$0.30|| || ||$0.23|| || ||$0.07|| || ||28%|| || ||N/A|
|Non-GAAP Pro Forma|| || || || || || || || || || || || || || || |
|Net revenue|| || ||$2,556|| || ||$2,189|| || ||$367|| || ||17%|| || ||21%|
|Net income|| || ||$443|| || ||$348|| || ||$95|| || ||27%|| || ||N/A|
|Earnings per diluted share|| || ||$0.36|| || ||$0.28|| || ||$0.08|| || ||27%|| || ||N/A|
Other Selected Financial and Operational Results
Operating Margin – GAAP operating margin for the fourth quarter of 2015 increased to 16.1%, compared to 15.9% for the same period last year. Non-GAAP operating margin increased to 20.8%, compared to non-GAAP pro forma operating margin of 19.9% for the same period last year. Assuming the operating agreement and other commercial agreements with eBay Inc. entered into in connection with the spin-off had been in effect during the fourth quarter of 2014, non-GAAP operating margin increased 90 basis points during the fourth quarter of 2015 compared to the same period last year.
Other Value Added Services (OVAS) – OVAS revenue increased 30% to $0.3 billion in the fourth quarter of 2015. OVAS benefited from the previously announced amendment and extension of the company’s agreement with Synchrony Financial and the growth of interest income and fees from its PayPal Credit products.
Taxes – The GAAP effective tax rate for the fourth quarter of 2015 was 12.2%, compared to 17.6% for the fourth quarter of 2014. The non-GAAP effective tax rate was 17.8% compared to the non-GAAP pro forma effective tax rate of 20.0% for the fourth quarter of 2014.
Cash Flow – PayPal generated $728 million of operating cash flow and $564 million of free cash flow during the fourth quarter of 2015.
Cash and Cash Equivalents and Non-equity Investments – PayPal’s cash and cash equivalents and non-equity investments totaled $5.7 billion at December 31, 2015.
2016 Financial Guidance
Full Year 2016:
- 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.
First Quarter 2016:
- PayPal expects net revenues to grow 19% – 21% on an FX-neutral basis, and 16% – 18% at current spot rates to a range of $2.470 to $2.520 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 $0.26 – $0.28 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 March 31, 2016, reflect adjustments of approximately $125 – $145 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.
Guidance net 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 5.5% to $33.30 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 $34.37 and its 200-day moving average is $35.26.
On the ratings front, Paypal has been the subject of a number of recent research reports. In a report issued on January 25, Monness Crespi Hardt & Co analyst James Cakmak upgraded PYPL to Hold. Separately, on the same day, Suntrust Robinson Humphrey’s Robert Peck maintained a Buy rating on the stock and has a price target of $38.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, James Cakmak and Robert Peck have a total average return of 12.8% and 2.1% respectively. Cakmak has a success rate of 77.8% and is ranked #512 out of 3607 analysts, while Peck has a success rate of 45.9% and is ranked #785.
Overall, one research analyst has rated the stock with a Sell rating, 3 research analysts have assigned a Hold rating and 13 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $42.14 which is 31.9% above where the stock opened today.
PayPal Holdings Inc is a technology platform company that enables digital and mobile payments on behalf of consumers and merchants. The Company’s payments platform includes PayPal, PayPal Credit, Venmo and Braintree products.