PayPal Revenue Soars on Enhanced Customer Engagement

Venmo clocks 131% jump in total payment volume to $4.9 billion during Q3 FY16

p1PayPal Holdings Inc. (NASDAQ: PYPL) announced its Q3 FY16 financial results on October 20th, 2016.

Headquartered in San Jose, California, the Company operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, and Xoom products.

In 2015, 28% of the 4.9 billion payments processed by PayPal were through mobile devices. With 192 million active customer accounts, PayPal operates in over 200 markets, allowing customers to get paid in more than 100 currencies, p2withdraw funds to their bank accounts in 56 currencies and hold balances in their PayPal accounts in 25 currencies. Read more about PayPal’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, PayPal’s revenue jumped 18% Y-o-Y to $2.67 billion compared to $2.25 billion a year ago, and 21% on a foreign currency neutral (FX-neutral) basis. GAAP operating income increased to $348 million in Q3 FY16 compared to $330 million a year ago, while non-GAAP operating income grew to $490 million compared to $450 million a year ago. However, GAAP operating margin decreased to 13%, compared to 14.6% for the same period last year. Non-GAAP operating margin also fell to 18.4%, compared to non-GAAP operating margin of 19.9% for the same period last year.

In all, PayPal’s Q3 FY16 GAAP net income grew to $323 million, or $0.27 per diluted share, compared to $301 million, or $0.25 per diluted share, a year ago. Non-GAAP net income jumped to $425 million, or $0.35 per diluted share, compared to $377 million, or $0.31 per diluted share, a year ago.

PayPal’s Q3 FY16 net cash from operating activities was $801 million compared to $652 million a year ago. Free cash flow was $618 million compared to $519 million a year ago.

PayPal adds value to customer engagement

During Q3 FY16, PayPal improved customer engagement on its platform, while continuing with its focus on mobile payments. It also expanded its customer base and delivered innovative and value-added products for p3added convenience.

During the reporting quarter, active customer accounts grew 11% to 192 million, with the addition of 19 million active customer accounts. PayPal’s transactions processed grew 24% to 1.5 billion, translating into 30 payment transactions per active account on a trailing 12-month basis, up 13%. Total payment volume (TPV) grew 25% to $87 billion and 28% on an FX-neutral basis. During the reporting quarter, customer accounts also grew due to improved experience at its money transfer service Xoom.

PayPal continues to add value on its platform by offering customer choice in its online and mobile checkout options. Customers are now able to set their preferred funding type in their PayPal Wallet to sources other than their PayPal balance, giving them the option to pay by default with their debit card, or credit card, or bank account.

During Q3 FY16, PayPal also extended its previous agreements with Chinese e-commerce giant Alibaba Group Holding Limited (NYSE: BABA). PayPal launched the first stages of becoming a payment option on Alibaba’s global retail marketplace, AliExpress.

p4Focus on mobile payment gateways

During Q3 FY16, PayPal’s Merchant Services’ TPV grew 32%, or 34% on an FX-neutral basis, and represented 84% of overall TPV for the quarter. PayPal processed nearly $26 billion in mobile payment volume, up 56%, representing 29% of TPV for the quarter. Venmo, its social payments platform, processed $4.9 billion of TPV, up 131% Y-o-Y, mainly attributed to its core service and the Venmo app.

PayPal added notable new merchants to the platform, ending the quarter with 15 million active merchant accounts. The list of leading brands choosing PayPal now includes H&M in four European countries, Costco de Mexico, Yelp, and Yandex Direct.

Launch of innovative products

During Q3 FY16, PayPal had more than 32 million active consumer accounts and 4 million active merchant accounts have opted in to One Touch, PayPal’s option for making purchases within apps and on websites. The system hinges on the interconnectedness of PayPal and its processing subsidiary Braintree. By the end of 2016, PayPal expects more than 5 million active merchant accounts to be offering One Touch to more than 36 million active consumer accounts.

Going forward, PayPal will also allow customers to link their PayPal and Xoom accounts, giving them access to their funding sources within Xoom. The integration allows Xoom users to send money to friends and family using their PayPal account. PayPal’s U.S. customers will be able to send funds to 10 new markets and get access to new services in the more than 50 countries that Xoom supports. Xoom also recently added a “request” feature, allowing remittances to become a two-way interaction betweenp5 senders and receivers.

Other highlights

Partnership with Mastercard: On September 6th, 2016, Paypal and Mastercard Inc. (NYSE: MA) announced an expansion of their existing partnership by making Mastercard a payment option within PayPal. Under the partnership, Masterpass will be a payment option for Braintree merchants, expanding PayPal’s presence at the point of sale. This will in turn provide increased value to Mastercard cardholders, financial institutions, and PayPal customers.

Under the partnership, consumers and small businesses will be able to instantly cash out funds held in their PayPal accounts to a Mastercard debit card. PayPal will also be provided certain financial volume incentives and, as a result of the commitments made under this agreement, will no longer be subject to the digital wallet operator fee.

p6Partnership with Visa: On July 21st, 2016, PayPal and Visa Inc. (NYSE: V) announced a strategic partnership that will result in an improved and seamless payment experience for Visa cardholders in the U.S. It will offer greater choice in how consumers pay with the PayPal and Venmo wallets. Under the agreement, PayPal will provide greater choice and improved experience for Visa cardholders. PayPal will also join the Visa Digital Enablement Program (VDEP) to expand point of sale acceptance, while facilitating instant withdrawal of money, enhanced data quality, and economic incentives.

Outlook for Q4 FY16 and full year FY16

For Q4 FY16, PayPal expects revenue to grow 14% to 17% at current spot rates and 16% to 19% on an FX-neutral basis, to a range between $2.92 billion and $2.99 billion. It also expects GAAP EPS of $0.30 to $0.32 and non-GAAP EPS in the range of $0.40-$0.42.

PayPal slightly raised the lower end of its range for its full year FY16 revenue guidance from $10.75 billion to $10.78 billion. For full year FY16, PayPal expects net revenues to grow 17% at current spot rates and 20% on an FX-neutral basis to a range of $10.78 to $10.85 billion. The company expects GAAP diluted EPS to range between $1.13 and $1.15 and non-GAAP diluted EPS to range between $1.48 and $1.50.

Stock Performance

p7PayPal’s stock stood at $42.33, falling 2.26%, at the close on Wednesday, October 26th, 2016, having vacillated between an intraday high of $43.21 and a low of $42.31 during the session. The stock’s trading volume was at 10,909,948 for the day. The Company’s market cap was at $51.09 billion as of Wednesday’s close.

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