Morningstar | PayPal Maintains Strong Growth in 4Q
PayPal maintained its impressive growth during the fourth quarter. We think this narrow-moat company has a number of factors working in its favor in the near term, and will maintain our $70 fair value estimate.PayPal's growth remains strong, with revenue up 13% year over year during the fourth quarter. This is especially impressive given that the sale of its credit card receivable portfolio reduced that figure by about 7 percentage points. PayPal saw a pick-up in new active accounts during the quarter, which were up 17% year over year. In terms of the absolute number of new active accounts, the fourth quarter marked a meaningful acceleration from recent results. This helped drive a 23% year-over-year increase in payment volume. On the call, management noted a data point that helps to illustrate how far PayPal has come from its roots, as it managed this level of overall growth despite only 4% growth from revenue associated with eBay this year.
The company also reported solid growth metrics from Venmo, its person-to-person payment platform. While we think PayPal faces some potentially stiff competition in this area, we also recognize the potential for this platform to ultimately drive a new leg of growth for the company, and we think Venmo deserves close scrutiny. The platform processed $19 billion in payment volume during the quarter, up $17 billion in the last quarter. The key question surrounding this initiative, however, continues to be not just whether Venmo is a long-term survivor but what the path is toward meaningful monetization of this platform. To this end, the fact that 29% of users participated in a monetizable action during the quarter, up from 24% last quarter, is a good sign. Management noted that Venmo enters 2019 with a revenue run rate of over $200 million. This level is not enough to move the needle in a major way for the overall business, but it does suggest Venmo already has a meaningful revenue base.
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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