PayPal’s Hit And Miss For Q4

PayPal kept its 2018 earnings beat streak alive, notching its fourth consecutive earnings beat with its Q4 results announcement yesterday (Jan. 30).

Revenue, however, was a slight miss for both the quarter and the year. PayPal posted $4.23 billion during the final quarter of 2018, slightly below analysts’ estimates of $4.24 billion — representing its first sales miss since 2015.

PayPal had a similar revenue miss for the full year — with $15.45 billion in revenue versus analysts’ estimates of $15.46 billion. PayPal CEO Dan Schulman noted on the call with investors that, despite being a miss, PayPal’s annual revenue was up 18 percent year on year, its highest annual growth rate since separating from eBay in 2015.

However, the unusual revenue miss on PayPal’s part — paired with the revenue projections for Q1 that also fell short of analyst estimates — meant that its stock took a hit in after-hours trading, after hitting a record high last week. A forecast range of between $4.08 billion and $4.13 billion falls short of the $4.16 billion for which analysts are looking.

In the analyst Q&A following the earnings report, Schulman was mostly upbeat on the Q4 outcomes. He said the goal continues to be for PayPal to become the “default digital operation system for mobile and digital commerce around the world,” noting that 2018 was yet another year of making “substantial progress toward that goal.”

Schulman explained that the slower-than-expected revenue picture in Q4 was the result of foreign exchange (FX) pressures and slower-than-expected growth outside of eBay. He then moved on to other metrics. For example, payment transactions totaled 2.9 billion for the quarter, up 28 percent, and that total payment volume (TPV) was up 26 percent year on year to $164 billion. For the whole year, Schulman reported processing “just shy of 10 billion transactions.”

The growth in PayPal user accounts also grabbed a fair share of attention.

As of the end of 2018, PayPal reported 242 million consumer accounts for those who use their PayPal accounts 37 times per year on average — that is up 9 percent. Schulman also reported that 21 million merchants now accept PayPal. In all, the firm added 13.8 million new accounts in total (consumer and merchant) in Q4, a 58 percent year-on-year increase, with 2.9 million coming via acquisitions. Schulman noted that the goal for the end of 2019 is to have 300 million active accounts.

Venmo got a strong shout out as well, with the volume of Venmo transactions hitting $19 billion, growing by 80 percent in Q4. Total peer-to-peer (P2P) volume across the company’s network, which included transfers sent through the core PayPal service, amounted to $39 billion during Q4. That put PayPal, as a whole, ahead of bank-backed Zelle (which reported payment volume of $35 billion for the December period earlier this week), though that left Venmo notably trailing.

For the year, nearly $62 billion changed hands on the Venmo platform.

Schulman called out PayPal’s ongoing attempts to monetize the Venmo platform as well. He noted that, in 2018, 30 percent of Venmo users had participated in a “monetizable transaction” like instant cash or merchant payments.

“Revenue, at this point, is split between instant cash and other monetizable services,” Schulman said, adding that the company expects to see this figure grow, particularly as Venmo brings on more merchant partners.

PayPal COO Bill Ready described PayPal’s various partnerships with players like Etsy, Walmart, Uber and Pinterest — and its new One Touch seller sign-up, designed to make it easier for small merchants to begin selling in a new marketplace or digital channel.

“Through PayPal for Partners, Marketplaces and One Touch seller sign-up, we are connecting small businesses and merchants of all sizes to all the best places to sell, giving them the opportunity to reach more buyers and drive greater sales,” Ready said.

Mobile payments also continued to be an area of strength for PayPal, with roughly $67 billion transacted through mobile devices for the quarter, a 40 percent boost on year-ago numbers.

However, for investors and analysts, the good news did not outweigh the worrisome revenue results. By some reviews, the report, while generally positive, had enough “mixed messages” to be of some concern — concern that investors are taking out on PayPal’s stock price, which was down 4 percent post-earnings announcement.