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PayPal experiences ‘strongest’ quarter, but outlook for Q4 falls short

PayPal had the “strongest” quarter in its history thanks to the e-commerce boom caused by the pandemic, the payments company said on Monday. Its operating margin for the quarter ended September 30 was 27.2%, a 0.37% improvement from last year. However, the company’s outlook for the ongoing quarter is not that rosy.

PayPal saw a total payment volume (TPV) of $247 billion in Q3, registering a growth of 38% YoY; revenue was $5.46 billion, a growth of 25% YoY. But for Q4, the company expects a TPV growth in the “low to mid 30%” range. Revenue growth is expected to be slightly lower, in the 20-25% range.

  • Company underscores uncertainty due to election, pandemic: When asked about the company’s outlook for Q4, CFO John Rainey signalled that it is not an easy forecast to make due to multiple uncertainties. He said that while PayPal’s core business is strong, and growing at 30% plus in revenue, the COVID-19 virus, lockdowns, consumer confidence, the outcome of the presidential election and potential social unrest made it “prudent” to give a wide range estimate.
  • Transactions worth $4 billion processed: For the first time in its history, PayPal processed transactions worth $4 billion in a quarter. PayPal daily active accounts, too, increased 32% compared a Q3 of 2019.
  • Added 15.2 million net actives: The company added 15.2 million net new active accounts (NNA) in the quarter, a drop from the 21.3 million NNA in the previous quarter. These two quarters accounted for the highest “organic customer acquisitions”. PayPal has also added 1.5 million new merchants to the platform during Q3, which is two times higher than its pre-COVID rates.

    “We ended Q3 with 361 million active accounts and we remain on track to end the year with a record 70 million NNAs” — Dan Schulman, CEO, PayPal

  • $900 million revenue expected from Venmo in 2021: Venmo, PayPal’s mobile payment service, processed around $44 billion in TPV, registering a massive growth of 61% year-over-year. The company expects revenue from Venmo to approach $900 million in 2021. CEO Schulman said Venmo’s new checkout feature, meant to simplyfy transactions, will lead to a “meaningful increase” in transactions.
    • Venmo’s credit card will be rolled out in the first quarter of 2021, which the company says will have the “most generous” cash back rewards system. “Over the next year, both the Venmo and PayPal apps will undergo a fundamental transformation intended to dramatically increase their functionality and drive engagement,” said Schulman.
  • Entering “new era” of financial services with crypto: PayPal recently announced that it will support Bitcoin and other cryptocurrencies. PayPal account holders can buy, sell and hold cryptocurrencies, a feature that will be expanded to international markets in the first half of 2021. The company hopes to allow cryptocurrencies to be used as a funding instrument to stop with all 28 million merchants registered on PayPal.

Earnings snapshot

  • Net revenues: $5.46 billion (growth of 25% YoY)
  • Net income: 1.021 billion (growth 121% YoY)
  • Operating income: $0.98 billion (growth of 40% YoY)
  • Total payment volume (TPV): $247 billion (growth of 38% YoY)
  • Net new active accounts (NNA): 361 million (15.2 million added in Q3)

Earnings release | Investor call transcript

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