Last week, PayPal (PYPL, Financial) shares jumped nearly 10% following the company’s announcement of third quarter results that beat analyst estimates. The company’s earnings were in line with Wall Street's expectations of 35 cents per share, but it wiped out expectations on revenue and issued a bullish guidance, thereby leading to the surge in stock price.
The growth comes a quarter after the digital online payments giant signed deals with MasterCard (MA, Financial) and Visa (V, Financial). By incorporating these payment options, PayPal allows its customers to choose the payment system as an option when paying for goods or services through their Internet-activated smartphones.
One of PayPal’s biggest drawbacks has been the inability to link the corporate world to the public system. While many people and businesses that use PayPal have tried to incorporate various business operations, such as taxation and bookkeeping, to the payment platform, some still prefer to use rather orthodox methods, such as accounting software, to perform these tasks.
Others choose to utilize third-party services like the ones offered by River Cohen, a financial consultancy and taxation services provider, to get about the bookkeeping aspect of their businesses. Nonetheless, given the deal between PayPal, MasterCard and Visa, this could pave the way for more streamlined modes of operations for startups and established businesses around the world.
In a press release, PayPal CEO Dan Schulman pointed out that the organization was “expanding the ubiquity and value of the PayPal brand.” The report further added that the company was focusing on achieving a “vision of becoming an everyday essential financial service for people around the world.”
In the company’s third quarter, PayPal recorded net revenue of $2.67 billion. This number was up 18.1% when compared with $2.26 billion from the same quarter last year. The figure also beat analysts’ projected revenue figure of about $2.65 billion.
According to PayPal’s guidance on the topline, the fourth quarter is expected to maintain the same curve and might register net revenue that could range from $2.92 billion to $2.99 billion.
As of Friday, the stock had jumped 9.78% from Thursday’s close and it seems set to continue on the same course this week despite the temporary pullback.
The statement also highlighted client growth base, whereby the organization had recorded an 11% increase on customers actively making use of their accounts. The release also showed that at least 24% of clients were constantly using their accounts to transact business. This translated to increased volume payouts of 25% or an equivalent sum of $87 billion.
Over the last five years, PayPal's customer base has continued to grow with the first recorded increase in 2010. At the time, the organization had continuously cited that its positive performance had been due to its core service. It also mentioned the Venmo app and Xoom money transfer service as contributing factors.
In 2014, various analysts had envisioned that Venmo’s peer to peer transaction capacity would have increased more than five times that year. The transactions were expected to grow from $14 billion in 2014 to $84 billion in 2019.
PayPal’s Friday surge has been attributed to seval factors, including Visa and the company’s partnership back in July. Since then, Visa’s customers have been able to transfer funds on their PayPal and Venmo accounts with less hassle.
During the first few days of the deal, critics and analysts had contradicting reports. Some critics were ahead and outlined the step as a course for higher transactions while some analysts kept it positive by reporting that the move was a stepping stone towards improved margins.
A few of those results were reflected when the company’s transaction margins dropped by 1.1%. PayPal has recorded a continuous decline in transaction margins over the last five quarters. According to Thursday’s results, the San Jose, California-based company's online payment system transaction margins had fallen from 59.8% to 58.7%.
Conclusion
PayPal is expecting the net revenue to grow to about $2.92 billion to $2.99 billion while an uptick in adjusted earnings is also expected for the fourth quarter to come in the range of 40 cents to 42 cents.
This new trend, which showcases a significant top-line growth, could continue in the foreseeable future if the company manages to convert a majority of partial service account users to full-service customers. The recently signed deals will be crucial towards that end.
Disclosure: I have no position in any stock mentioned in this article.
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