PayPal’s (PYPL, Financial) growth in the financial services industry has been stunning for the past several years as it keeps expanding its revenues in an industry that has long been dominated by Visa (V, Financial) and MasterCard (MA, Financial).
Visa’s above-50% operating margin is a clear testimony to the kind of control it has and position it is in, but PayPal, riding high on technology, carved out its own market and managed to match Visa’s growth trajectory in the last five years, adding nearly $5 billion to the top line.
Apart from just growing revenues, there is one metric that shows how PayPal has deeply integrated itself with its customers. PayPal’s active customer accounts touched 203 million at the end of the first quarter, an increase of 60 million accounts from what it had at the end of fourth-quarter 2013. As the user base kept expanding at a steady clip over this period, the number of payment transactions increased at an even greater pace –Â from 3,261 transactions in 2013 to 4,928 transactions in 2016.
Payment transactions per account have now gone up from 22.9 by the end of 2013 to 31.7 by the end of the first quarter – which means, on average, customers are now doing at least seven more transactions than they did four years ago. The combination of user base growth and growing transactions per account is what has helped PayPal keep its double-digit revenue momentum intact. The fact that both these metrics are still growing shows the company still possesses enough momentum to carry it for several more quarters.
PayPal keeps pushing in two directions.
On the one side, it keeps building partnerships that expand its reach. PayPal brought many new brands to its platform during the first quarter, including online fashion retailer Vente-Privee in France, Papa John’s (PZZA, Financial) and Groupon (GRPN, Financial) in the U.S., Mexican department store chains, Coppel and Liverpool added access rooms, Vista Rooms and MakeMyTrip in the travel and tourism vertical in India.
On the other side it also keeps improving its technology and offerings. PayPal added a single click checkout solution called One-Touch, which now has 53 million users; it bought Xoom (XOOM, Financial) to expand its global remittance service and Tio Networks (TSXV:TNC, Financial) to bring customers who use cash and stay out of the financial services industry. All the while, mobile payments volume keeps increasing through Venmo, PayPal’s mobile wallet solution.
Despite its incredible growth PayPal has shown the hunger to expand its services and is enjoying the benefits of that. Every year, PayPal improves its service, be it on the tech end by launching solutions like One-Touch or buying a company like Tio Networks or Xoom – small acquisitions in terms of cost but as products they can add a lot of value to the customer.
PayPal expects solid results in 2017 as the company has guided for 15% to 17% revenue growth for the year, and net customer addition is expected to cross 20 million for the year. The growing transactions per active account will keep increasing transaction volume, allowing PayPal to earn more revenue per customer as it keeps deepening its engagement with its user base.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
