Morningstar | Paypal Maintains Its Pace in the Third Quarter
Overall, we think’s PayPal’s third-quarter results show the company maintaining its underlying growth rate, and we think the company continues to have a number of factors working in its favor in the near term. We will maintain our $70 fair value estimate and narrow moat rating.The sale of the U.S. consumer credit receivables portfolio to Synchrony dinged reported revenue growth, but stripping out this event, growth rates across the relevant metrics largely held steady compared with recent results, which is impressive given that the company is working off a larger base over time. Active accounts were up 15% year over year. More importantly, in our view, is that transactions per account were up 9% year over year. Given the ongoing evolution in the electronic payments space, we think increased engagement is an important sign. Based on these two factors, payment volumes were up 25% year over year, excluding currency effects.
Mobile payments remain a key driver for the business, with mobile volume up 45% year over year, representing 40% of total volume. We think a consumer shift toward mobile payments is somewhat inevitable, and we like how PayPal is positioned on this front.
The company reported impressive growth metrics from Venmo, its social media person-to-person platform. The platform processed $17 billion in payment volume in the quarter, up 78% from last year. The key question surrounding this initiative, however, continues to be not just whether Venmo is a long-term survivor in this nascent area but also the path toward meaningful monetization of this platform. To this end, the fact that 24% of users participated in a monetizable action in the quarter, compared with 17% last quarter, is a positive sign, in our view.
Based on the strong growth and the scalable nature of the business, PayPal is seeing significant margin improvement. Excluding purchase amortization and one-time items, operating margins improved to 15.4% from 13.9% last year.
PayPal Holdings is a technology platform and digital payments company that enables digital and mobile payments on behalf of consumers and merchants worldwide. The company's combined payment solutions include its PayPal, PayPal Credit, Braintree, Venmo, Xoom and iZettle products and services. PayPal's payment solutions enable the company's customers to send and receive payments. PayPal helps merchants and consumers connect, transact, and complete payments, whether they are online, on a mobile device, in an app, or in person. The company provides proprietary payment solutions accepted by merchants that enable the completion of payments on the company's Payments Platform on behalf of its customers.
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