“It was the best of the times, it was the worst of times,” wrote Charles Dickens in one of the more famous openings to a novel in history. It was a fairly good description of life in Europe on the eve of the French Revolution and, as it turns out, a reasonably good synopsis for the recent rush of earnings reports in the era of COVID-19. For many firms, the last two months have represented the absolute worst of times as social distancing and forced closures have ground their businesses to a halt. Disney, for example, reported earlier this week that it has lost roughly $1 billion each day since the start of the shutdown.
But many firms and all firms are two different things, and while from a humanitarian perspective PayPal clearly wishes COVID-19 never happened, by the numbers it is undeniable that it has boosted its business. Almost a week ago, May 1, PayPal experienced the largest single day of transactions in the company’s history — bigger than both Black Friday and Cyber Monday of 2019.
April 2020 was also a record-breaking month for PayPal in terms of enrollment and use. PayPal added 7.4 million net new active accounts. PayPal also hit a record in Q1, CEO Dan Schulman noted, adding 10 million net new accounts — though that pick-up was rapidly outshined in April, when its daily net new customer rate averaged roughly 250,000 per day and counting. Answering an analyst’s question, Schulman noted the previous day PayPal had added 295,000 net new active users, and that on the whole they anticipate adding 15 million to 20 million net new active accounts in Q2.
The first quarter of 2020 also saw payment transactions pickup by 20 percent to 1.2 billion and its total payments volume (TPV) increase by roughly $68 billion, a roughly 22 percent year-on-year increase.
“Our products and services have never been more needed and more relevant,” Schulman told investors after the firm’s earnings went live. “I think we all would agree that COVID-19 has fundamentally changed the way we think about the future. One profound change will be a dramatic acceleration from physical to digital. It’s clear that digital payments have evolved from a nice-to-have capability to an essential service.”
But for the boost the explosion of digital commerce has given PayPal during the first quarter, it has also leveled some serious costs. PayPal posted net income of $84 million, or 7 cents a share — considerably down from the $667 million, or 56 cents a share, it posted this time last year. That 87 percent decline, PaPal noted, includes (among other one-time events) a 17-cent negative impact from a credit reserve the company is taking due to the macroeconomic climate through the Current Expected Credit Losses (CECL) standard.
According to PayPal, the deteriorating economic situation in March slashed the volumes and revenue generated from travel and events while simultaneously depressing credit income.
Minus the credit reserve impact, PayPal noted, $0.83 non-GAAP EPS without credit reserves came in at $.83 — a 26 percent year-on-year increase, and ahead of pre-earnings forecasts of $.66 non-GAAP EPS.
As for other Q1 results, PayPal reported $191 in TPV, a 19 percent year-on-year increase, but still slightly shy of analysts’ forecasts of $195.2 billion. Of that total, PayPal processed $56 billion in peer-to-peer volume and $31 billion in Venmo volume. Revenue for the quarter increased, despite the sluggishness in some segments — it grew to $4.62 billion from $4.13 billion at this time last year.
“As shelter-in-place and social distancing became the norm across the globe, and as one economy after another effectively shut down, we saw a substantial revenue decline, predominantly in our travel and ticketing verticals,” Schulman noted in his remarks to investors. “Some of our important customers, including Uber, Airbnb and Live Nation, saw rapid decreases in transaction volumes. That said, the diversity of our business by merchant size and geography meaningfully offset margin pressures.”
But it wasn’t quite enough to meet the FactSet consensus estimate that was looking for $4.74 billion in revenue.
As for what’s coming next, from an earnings perspective, PayPal is forecasting revenue growth of roughly 15 percent to $4.96 billion, and earnings to tick up by 15 to 20 percent, to the $0.81 - $0.85 EPS range.
Schulman also called attention to PayPal’s critical work in distributing government stimulus funds to both consumers and businesses hit hard by the COVID-19 epidemic.
“It was an important and proud moment when we became one of the very first non-bank lenders approved to distribute the Paycheck Protection Program funds to the small businesses we serve. We have already funded tens of thousands of loans, distributed well over $1 billion with an average loan size of $35,000, and PayPal and Venmo customers in the U.S. are eligible to receive their economic stimulus payment directly into their digital wallet,” Schulman said.
Proud, Schulman noted, and an indicator of things to come — as the world’s digital shift will carry on, even after the COVID-19 pandemic is done. Digital payments are going to be an integral part of our daily lives, he noted, long after the restrictions and regulations are lifted.
Governments, regulators and merchants of all sizes are now appealing to us to expand PayPal and Venmo into in-store checkout flows in order to help enable a safe checkout experience, Schulman told investors — which in turn has spurred PayPal to accelerate its own internal timeline when it comes to the rollout of in-store digital payments in all markets that support PayPal P2P payments. Contactless payments, he noted, are now a need-to-have, not a nice-to-think-about, as consumers and merchants both want to get away from handling cards and punching keypads.
“This is an unprecedented time in our history. The COVID-19 pandemic has impacted almost everyone around the globe. It’s demonstrated how connected our world is, and it will change the way we live our daily lives. Digital platforms combined with real world solutions have enabled us to navigate many of the unique challenges of the pandemic, and I believe we will look back at this time as a tipping point, where digital payments both offline and online became an essential element of our lives, hastening the demise of cash, enforcing a reimagination of commerce, retailing and the payment system — and we intend to be a driving force as those trends unfold.”
And its investors, at least thus far, are interested in seeing PayPal do it. PayPal’s stock was trading up 8 percent after hours after the earnings went live.