PayPal Beats The Street And Announces Big Alibaba Pair-Up

The team at PayPal is waking up to another chipper post-earnings morning today as the firm announces another quarter with a lot of green arrows: revenue was up, and so were profits, active accounts and transactions. Especially transactions, but more on that in a second. Other than another earnings report that showed the figures moving almost uniformly in the right direction, PayPal’s arrows were also somewhat greener than the market was expecting — meaning the after hours stock price has enjoyed a sizable bounce.

A bounce that came at just the right time for PayPal. Though the early fall trend had been a positive one for PayPal, with prices nicely recovering after that annual late summer slump that tends to effect stocks across the board, the first few weeks of October had seen share price in decline. But investors like the solid numbers PayPal put up — and its expansive vision of the future of the platform as the operating system for digital commerce worldwide.

“We are further expanding the ubiquity and value of the PayPal brand and moving deliberately towards achieving our vision of becoming an everyday, essential financial service for people around the world,” said Dan Schulman, president and CEO of PayPal noted in a call with investors.

What will that expansion look like — and where is it going next?

By The Numbers

All in all, net revenue was up 18 percent to $2.7 billion versus last year, while net income rose 7 percent to $323 million. Both revenue and profit beat analyst expectations. Transaction volume saw the biggest pick-up — 25 percent year-over-year, to $87 billion.

Active customer accounts grew 11 percent to 192 million globally — the latest point on a fairly steady line of increase in active customer accounts over the last five years beginning in Q1 2010. PayPal attributes that growth primarily to its core service and the Venmo app.

The company slightly raised the lower end of its range for its full year 2016 revenue guidance, from $10.75 billion to $10.78 billion — the upper limited guidance of $10.85 billion in revenue for the year remained unchanged. The three-year forecast also got a slight bump to a range of 16 percent to 17 percent (from 15 percent).

All those green arrows in the report netted even more in after hours trading — PayPal shares were up 2.9 percent after-hours, to $41.25, just shy of its 52-week high of $41.75.

“These results reinforce our belief that the opportunities for PayPal to grow and gain share have never been greater. We are executing against our strategic plan with intensity and speed. And we are committed to seizing the opportunities in front of us by truly embracing the mantle of Customer Champion,” Schulman told investors during the debriefing call.

Embracing The “Customer Champion”

More than team PayPal wanted to talk up its numbers during the taking of bows for Q3, they mostly wanted to talk up their expansion and revision as a company — particularly as it relates to moving money online, checking out on mobile and moving money from person to person — no matter where on Earth the two (or more) parties to the transaction happen to be standing.

“In the quarter, we made meaningful progress in offering customer choice in our online and mobile checkout and in our P2P experiences. These have enhanced so that our customers in the U.S. can send money, shop and pay with PayPal. Our customers are now able to set their preferred funding type in their PayPal Wallet to sources other than their PayPal balance. This gives customers the option to default to their favorite debit card, bank account or credit card, and we’ve seen a corresponding increase in engagement.”

That new ability to set preferred funding types in the PayPal wallet comes care of PayPal’s big partnership (and hatchet burying) with Visa and Mastercard — a pair-up that is given some measure of the credit for the big spike up in PayPal’s transaction volume. Schulman also noted during his remarks the partnerships has opened up payments at the physical point of sale powered by NFC and secured by tokenization.

And PayPal was talking up more than its core service.

Venmo — PayPal’s P2P payments service — processed $4.9 billion in payments in the quarter, up 131 percent from a year ago. If it stays on track with current growth rates, it will hit $20 billion this year. Xoom was also called out as a significant driver of innovation in connecting remittance receivers in 29 countries to PayPal users. And, in fact, connecting them pretty directly, since PayPal also noted it would connect its online accounts to Xoom.

“Cross-border is a strength for PayPal,” Schulman noted. “The whole idea around customer choice is letting people pay how they want, but also where they want.”

And cross-border strength in one place in particular — China — is especially important.

Speaking of China…

The Expanded Alibaba Pair-Up

The flashiest news in the PayPal earnings call was the announcement that it had struck an enhanced agreement with Alibaba Group Holding Ltd. to make PayPal a one-click payment option in the Chinese e-commerce giant’s AliExpress marketplace for consumers.

Schulman noted the Alibaba expanded partnership not only demonstrated PayPal’s increasingly global reach — but also demonstrates the important of an independent PayPal operating in the payments and commerce space. While eBay will always be have a special relationship with PayPal, Schulman noted, being an independent operator is what makes it truly possible for PayPal to pursue its grander vision.

“They [eBay] have great strengths with merchants inside China, who already major cross-border players in the Chinese corridor. So that match would never happen had we not been an independent third party. And that’s happening with numerous retailers as well, especially as we expand our value proposition now to really appeal to a mobile-centric world, that one retailer after another of all sizes are thinking about.”

Because at PayPal — as it has spent the last half of 2016 demonstrating with its strenuous efforts to win the best cooperator award — vision is about being the hub in a wheel that connects a global network. And that network has a simple goal — connect the esoteric preferences and needs of issuers, acquirers, merchants, marketplaces and consumers and make them flow in a transparent, consistent and secure fashion.

It remains a big goal — and will be quite a feat if PayPal actually pulls it off.

But at least their numbers are pointing in the right direction — which is always a good first step.