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PayPal's (PYPL) Earnings Top Estimates in Q4, Revenues Miss
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PayPal Holdings, Inc. (PYPL - Free Report) delivered non-GAAP earnings of 69 cents per share in the fourth quarter of 2018, which surpassed the Zacks Consensus Estimate by a couple of cents and also increased 25.5% on a year-over-year basis.
Moreover, net revenues improved 14% year over year to $4.228 billion but missed the Zacks Consensus Estimate of $4.238 billion.
This year-over-year growth in top line can be attributed to geographic and product diversification, stemming from acquisitions, Venmo monetization and strength in APAC business. However, slower-than-expected eBay volume growth and excessive FX pressure were overhangs.
Moreover, weak eBay (EBAY - Free Report) performance and challenging macroeconomic environment in China and the UK forced the management to issue a lower-than-expected revenue guidance for first-quarter 2019.
Quarter in Detail
Segment wise, Transaction revenues came in at $3.85 billion (91% of net revenues), up 19% from the year-ago quarter. Other value added services generated $375 million of revenues (accounting for 9% of net revenues), decreasing 25% year over year.
Geographically, revenues from the United States came in at $2.19 billion (52% of net revenues), up 7% on a year-over-year basis. International revenues were $2.04 billion (48% of revenues), increasing 19% from the prior-year quarter. India and Japan are the two key growth drivers for the company.
On the earnings call, management mentioned that the company is expanding its merchant and financial institution partnerships throughout India’s ecosystem. The company also launched a suite of services for merchant and consumers in Japan.
Paypal secured partnerships with more than 20 top tier global financial institutions, which include eight of the top 10 banks in the United States.
During the quarter under review, the company began piloting One Touch seller sign-up with noteworthy partners, which includes Walmart (WMT - Free Report) . The company also entered into a strategic partnership with electronic billing service company, Paymentus.
Moreover, the company’s strong Venmo monetization efforts remained positive throughout the reported quarter. It recorded 29% growth in the number of Venmo users, who have actively participated in monetization activity in the quarter under consideration compared with the last reported quarter. A strong uptick in Instant Cash Out, Venmo card and Pay with Venmo is a tailwind. Pay with Venmo continues to attract new partners inclusive of Shopify (SHOP - Free Report) , BigCommerce and Jay-Z’s Tidal.
PayPal Holdings, Inc. Price, Consensus and EPS Surprise
Supported by these endeavors, the company recorded 17% year-over-year growth in total active accounts by the addition of 13.8 million net new active accounts during the reported quarter. The acquisitions of Hyperwallet and iZettle led to an accretion of 2.9 million net new active accounts. Total number of active accounts was 267 million in the fourth quarter.
Customer engagement, which is nearly 37 transactions per active account grew 9% year over year. It drove $164 billion in Total payment volume (TPV) in the quarter under discussion, up 25% on an FX neutral basis.
Additionally, the total number of payment transactions came in at 2.87 billion, up 28% on a year-over-year basis.
TPV came in at $163.6 billion in the fourth quarter, exhibiting 23% and 25% year-over-year growth on spot rate and currency neutral basis, respectively. Excluding eBay, TPV grew 29% on FX-neutral basis.
Merchant services volume was $147 billion, up 29% year over year, driven by core PayPal and Braintree. Also, P2P volume, which is part of merchant services, was $39 billion, up 46% from the year-ago quarter, accounting for 24% of TPV.
eBay, accounting for 10% of TPV, recorded no growth in its volume during the reported quarter.
Nevertheless, strong performance of Venmo represented $19 billion of TPV during the reported quarter. The figure soared 80% on a year-over-year basis.
Cross border trade (CBT) volume was $30 billion, contributing to 18% of TPV. The figure grew 14% on FX-neutral basis. Strengthening of U.S. dollar induced a deceleration in CBT growth (20% in the year-ago quarter).
Further, PayPal processed $67 billion in mobile payment volume, surging 40% and reflecting 41% of TPV.
Operating Details
Adjusted operating expenses were $3.31 billion in the third quarter, climbing 14.3% from the prior-year quarter.
Non-GAAP operating income rose 13% year over year to $913 million. However, non-GAAP operating margin declined 18 bps to 21.6%.
Balance Sheet & Cash Flow
As of Dec 31, 2018, cash equivalents and investments came in at $9.1 billion, down from $10.5 billion on Sep 30, 2018.
PayPal generated operating cash flow of $1.13 billion and adjusted free cash flow of $910 million during the fourth quarter.
Guidance
For first-quarter 2019, PayPal expects revenues between $4.08 billion and $4.13 billion, growing in the range of 11-12% at current spot rate and 11-13% on FX-neutral basis. The Zacks Consensus Estimate is pegged at $4.16 billion.
Non-GAAP earnings are anticipated in the range of 66-68 cents per share. The Zacks Consensus Estimate stands at 66 cents.
For fiscal 2019, PayPal estimates revenues between $17.85 billion and $18.1 billion, rising in the 16-17% band at both current spot rates and on FX-neutral basis. The Zacks Consensus Estimate is projected at $18.06 billion.
Lack of eBay growth and geopolitical uncertainty in China and Europe pose challenges to the company. However, expanding marketplace relationships, Venmo monetization, opportunities in India, strong secular growth-driving digital payments and mobile commerce remain tailwinds.
The company targets to achieve more than 300 million active accounts by 2019 end. It projects Venmo to contribute $200 million toward revenues in 2019.
Further, non-GAAP earnings are anticipated in the range of $2.84-$2.91 per share. The Zacks Consensus Estimate is currently pegged at $2.89.
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PayPal's (PYPL) Earnings Top Estimates in Q4, Revenues Miss
PayPal Holdings, Inc. (PYPL - Free Report) delivered non-GAAP earnings of 69 cents per share in the fourth quarter of 2018, which surpassed the Zacks Consensus Estimate by a couple of cents and also increased 25.5% on a year-over-year basis.
Moreover, net revenues improved 14% year over year to $4.228 billion but missed the Zacks Consensus Estimate of $4.238 billion.
This year-over-year growth in top line can be attributed to geographic and product diversification, stemming from acquisitions, Venmo monetization and strength in APAC business. However, slower-than-expected eBay volume growth and excessive FX pressure were overhangs.
Moreover, weak eBay (EBAY - Free Report) performance and challenging macroeconomic environment in China and the UK forced the management to issue a lower-than-expected revenue guidance for first-quarter 2019.
Quarter in Detail
Segment wise, Transaction revenues came in at $3.85 billion (91% of net revenues), up 19% from the year-ago quarter. Other value added services generated $375 million of revenues (accounting for 9% of net revenues), decreasing 25% year over year.
Geographically, revenues from the United States came in at $2.19 billion (52% of net revenues), up 7% on a year-over-year basis. International revenues were $2.04 billion (48% of revenues), increasing 19% from the prior-year quarter. India and Japan are the two key growth drivers for the company.
On the earnings call, management mentioned that the company is expanding its merchant and financial institution partnerships throughout India’s ecosystem. The company also launched a suite of services for merchant and consumers in Japan.
Paypal secured partnerships with more than 20 top tier global financial institutions, which include eight of the top 10 banks in the United States.
During the quarter under review, the company began piloting One Touch seller sign-up with noteworthy partners, which includes Walmart (WMT - Free Report) . The company also entered into a strategic partnership with electronic billing service company, Paymentus.
Moreover, the company’s strong Venmo monetization efforts remained positive throughout the reported quarter. It recorded 29% growth in the number of Venmo users, who have actively participated in monetization activity in the quarter under consideration compared with the last reported quarter. A strong uptick in Instant Cash Out, Venmo card and Pay with Venmo is a tailwind. Pay with Venmo continues to attract new partners inclusive of Shopify (SHOP - Free Report) , BigCommerce and Jay-Z’s Tidal.
PayPal Holdings, Inc. Price, Consensus and EPS Surprise
PayPal Holdings, Inc. Price, Consensus and EPS Surprise | PayPal Holdings, Inc. Quote
Key Metrics to Consider
Supported by these endeavors, the company recorded 17% year-over-year growth in total active accounts by the addition of 13.8 million net new active accounts during the reported quarter. The acquisitions of Hyperwallet and iZettle led to an accretion of 2.9 million net new active accounts. Total number of active accounts was 267 million in the fourth quarter.
Customer engagement, which is nearly 37 transactions per active account grew 9% year over year. It drove $164 billion in Total payment volume (TPV) in the quarter under discussion, up 25% on an FX neutral basis.
Additionally, the total number of payment transactions came in at 2.87 billion, up 28% on a year-over-year basis.
TPV came in at $163.6 billion in the fourth quarter, exhibiting 23% and 25% year-over-year growth on spot rate and currency neutral basis, respectively. Excluding eBay, TPV grew 29% on FX-neutral basis.
Merchant services volume was $147 billion, up 29% year over year, driven by core PayPal and Braintree. Also, P2P volume, which is part of merchant services, was $39 billion, up 46% from the year-ago quarter, accounting for 24% of TPV.
eBay, accounting for 10% of TPV, recorded no growth in its volume during the reported quarter.
Nevertheless, strong performance of Venmo represented $19 billion of TPV during the reported quarter. The figure soared 80% on a year-over-year basis.
Cross border trade (CBT) volume was $30 billion, contributing to 18% of TPV. The figure grew 14% on FX-neutral basis. Strengthening of U.S. dollar induced a deceleration in CBT growth (20% in the year-ago quarter).
Further, PayPal processed $67 billion in mobile payment volume, surging 40% and reflecting 41% of TPV.
Operating Details
Adjusted operating expenses were $3.31 billion in the third quarter, climbing 14.3% from the prior-year quarter.
Non-GAAP operating income rose 13% year over year to $913 million. However, non-GAAP operating margin declined 18 bps to 21.6%.
Balance Sheet & Cash Flow
As of Dec 31, 2018, cash equivalents and investments came in at $9.1 billion, down from $10.5 billion on Sep 30, 2018.
PayPal generated operating cash flow of $1.13 billion and adjusted free cash flow of $910 million during the fourth quarter.
Guidance
For first-quarter 2019, PayPal expects revenues between $4.08 billion and $4.13 billion, growing in the range of 11-12% at current spot rate and 11-13% on FX-neutral basis. The Zacks Consensus Estimate is pegged at $4.16 billion.
Non-GAAP earnings are anticipated in the range of 66-68 cents per share. The Zacks Consensus Estimate stands at 66 cents.
For fiscal 2019, PayPal estimates revenues between $17.85 billion and $18.1 billion, rising in the 16-17% band at both current spot rates and on FX-neutral basis. The Zacks Consensus Estimate is projected at $18.06 billion.
Lack of eBay growth and geopolitical uncertainty in China and Europe pose challenges to the company. However, expanding marketplace relationships, Venmo monetization, opportunities in India, strong secular growth-driving digital payments and mobile commerce remain tailwinds.
The company targets to achieve more than 300 million active accounts by 2019 end. It projects Venmo to contribute $200 million toward revenues in 2019.
Further, non-GAAP earnings are anticipated in the range of $2.84-$2.91 per share. The Zacks Consensus Estimate is currently pegged at $2.89.
Paypal currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here
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