PayPal’s (PYPL, Financial) stock price has moved up by more than 18% in the last 12 months as the company kept posting strong growth numbers throughout 2016. The payment processing market is competition-intensive with established players Visa (V, Financial), MasterCard (MA, Financial) and American Express (AXP, Financial), and it’s gotten even more interesting now with Apple (AAPL, Financial), Google and Samsung (XKRX:009150, Financial) expanding into it by launching digital wallets.
But if its performance in 2016 is anything to go by, then PayPal has found its place in the overcrowded market and is more than capable of growing its market share. PayPal’s revenue reached $10.84 billion in 2016, a growth of 21% in constant currency compared to the previous year. PayPal has nearly doubled its top line in four years, from $5.66 billion in 2012 to $10.84 billion in 2016, with the operating margin holding around the 15% mark.
As a payments processor, the growth in total payment volume (TPV) is a good indicator of the demand the company enjoys in the market. TPV has been increasing at strong double-digit rates for the last several quarters, driven by PayPal’s ever-expanding merchant services volume.
Active customer accounts increased by 18 million in the last four quarters, and the company ended 2016 with 15 million merchant accounts. Merchant services TPV accounted for 84% of overall TPV during the fourth quarter as it continues to push PayPal to higher levels. The growth of merchant services volume over the past several years is a huge validation of PayPal’s solutions addressing their needs.
Although the mobile wallet phenomenon could disrupt this segment, it will take many years for new entrants in the digital wallet space to mount a challenge against PayPal’s dominance in the merchant segment. By the time they are ready, PayPal will have gotten much bigger and stronger.
The best part about PayPal’s growth in 2016 is that the company seems to be enjoying the shift from a desktop-based to a mobile device-based world. PayPal processed $31 billion in mobile payments during the fourth quarter – nearly one-third of its overall TPV. Increasing mobile consumption has not affected PayPal’s growth in any way, which is great news for the company as this trend is only expected to accelerate in the next several years.
PayPal has predicted 2017 revenues will be in the $12.65 billion to $12.45 billion range, a growth of 17% to 15% compared to 2016 numbers. The fact that PayPal expects double-digit growth next year as well shows the strong underlying demand for PayPal’s solutions.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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