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PayPal (PYPL) Earnings & Revenues Exceed Estimates in Q1

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PayPal Holdings, Inc. (PYPL - Free Report) reported first-quarter 2017 earnings of 36 cents per share, surpassing the Zacks Consensus Estimate of 33 cents. Also, earnings were up 12.5% year over year.

Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Following the better-than-expected first-quarter results, the share price surged more than 5.61%.

In the last one year, shares of PayPal outperformed the Zacks Internet - Software industry. The stock returned 19.6% compared with the industry’s gain of 8.3%.

The results were driven by continuous strong performance in global payments, both online and mobile. PayPal added 6 million new customers in the first quarter taking total active customer accounts to 203 million. The company continues to do well with the Customer Champion strategy and enhanced value for customers and merchants.

In the quarter, partnership and mobile centrism continued to be PayPal’s top priorities.

The company partnered with Google to link PayPal wallet with Android Pay wallet in the U.S. Additionally, PayPal partnered with Wells Fargo, expanding its services at the point of sale. It also partnered with Visa into the Asia-Pacific region.

The company is also exploring partnerships across multiple original equipment manufacturers (OEM), technology companies, mobile-carriers, retailers and financial institutions.

The company’s ongoing strategic partnerships with Visa and MasterCard offer great flexibility and choice to consumers. Partnerships with Facebook , Alibaba’s (BABA - Free Report) AliExpress and Alphabet’s (GOOGL - Free Report) Google, Intuit and other major retailers and financial institutions will continue to deliver positive results.

Also, the quarter witnessed PayPal’s accelerated push into mobile with Venomo continuing to bolster its stake in mobile payments.

Revenues

Net revenue of $2.98 billion was up 16.9% on a year-over-year basis (up 19% on an Fx-neutral basis). Also, revenues were above the Zacks Consensus Estimate of $2.93 billion.

Transaction revenues of $2.60 billion contributed 87% to total revenue and were down 1% sequentially but up 16% on a year-over-year basis. Other value-added services revenues of $0.37 billion contributed the rest and were up 3% sequentially and 23% year over year.

Geographically, the U.S. contributed 54% to total revenue, up 2% sequentially and 20% on a year-over-year basis. International revenues contributed 46% to total revenue and were down 3% sequentially but up 14% year over year.

In the quarter, total TVP was $99 billion, growing 25% year over year on an Fx-neutral basis. The company processed 1.7 billion payment transactions (32 payment transactions per active account), up 23% year over year.

Margins

Operating expenses of $2.5 billion increased 2.2% from the prior-year quarter and 19.4% sequentially. Operating margin shrank 202 basis points (bps) year over year but was up 195 bps sequentially to 14.5%.

Excluding the impact of intangibles, amortization and other items on a tax-adjusted basis, pro forma net income of $415 million was up 12.5% year over year and 5.9% sequentially.

Including special items, GAAP net income was $384 million (32 cents per share) compared with $365 million (30 cents per share) in the year-ago quarter.

Balance Sheet and Cash Flow

PayPal had a strong balance sheet at the end of the first quarter. Cash and short-term investments balance was $4.06 billion compared with $5 billion in the previous quarter. The company generated $751 million in cash from continuing operations and spent $148 million on capex.

The company has no long-term debt.

During the quarter, the company announced that it has authorized a new stock-repurchase program, under which the company may buy back up to $5 billion in outstanding common stock.

However, this program will be effective after the completion of the company's Jan 2016 stock-repurchase program, which still has approximately $488 million shares.

Outlook

For the second quarter of 2017, PayPal expects revenues to grow in the range of 17–19% on an Fx-neutral basis to $3.05–$3.1 billion. The Zacks Consensus Estimate is pegged at $3.07 billion. Non-GAAP earnings are expected to be in the range of 41–43 cents. The Zacks Consensus Estimate is pegged at 34 cents. GAAP earnings per share are expected in the range of 30–32 cents.

For 2017, PayPal increased its expectations. The company now expects revenues between $12.52 billion and $12.72 billion against its earlier expectations of $12.45–$12.65 billion. The Zacks Consensus Estimate is pegged at 12.62 billion.

PayPal Holdings, Inc. Price, Consensus and EPS Surprise

 

PayPal Holdings, Inc. Price, Consensus and EPS Surprise | PayPal Holdings, Inc. Quote

Currently, PayPal has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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