10-QPeriod: Q2 FY2017

PayPal Holdings, Inc. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 27, 2017For Securities:PYPL

Summary

PayPal Holdings, Inc. reported solid financial performance for the quarter and six months ended June 30, 2017. Net revenues saw an 18% increase year-over-year for both periods, driven by a 23% growth in Total Payment Volume (TPV). This growth was primarily fueled by strong performance in their core PayPal and Braintree products. Despite a significant increase in operating expenses, particularly transaction expenses and loan losses, the company managed to grow its net income by 27% for the quarter and 16% for the six-month period, indicating effective cost management and operational efficiencies. Key financial highlights include a robust increase in TPV, healthy revenue growth, and improved profitability on a non-GAAP basis. The company also demonstrated strong free cash flow generation, with a 51% increase in the second quarter. PayPal's balance sheet remains strong, with substantial cash and investment reserves, and a fully available $2.0 billion revolving credit facility. Management continues to focus on expanding its services and global reach, while navigating an evolving regulatory landscape.

Financial Highlights

49 data points
Beta

Revenue

$3.14B

Net Income

$411.00M

13.1% Net Margin

EPS (Diluted)

$0.34

Total Assets

$35.29B

Cash & Equivalents

$1.27B

Free Cash Flow

$747.00M

Financial Statements
Beta
Revenue$3.14B
R&D Expenses$232.00M
Operating Expenses$2.71B
Operating Income$430.00M
Net Income$411.00M
EPS (Basic)$0.34
EPS (Diluted)$0.34
Shares Outstanding (Basic)1.20B
Shares Outstanding (Diluted)1.22B

Key Highlights

  • 1Net revenues increased 18% year-over-year for both the three and six months ended June 30, 2017, reaching $3.1 billion and $6.1 billion, respectively.
  • 2Total Payment Volume (TPV) grew by 23% year-over-year for both periods, indicating strong customer adoption and platform usage.
  • 3Net income saw a substantial increase of 27% for the quarter and 16% for the six-month period, demonstrating improved profitability.
  • 4Operating expenses rose 19% due to increased transaction expenses and loan losses, but operating margin remained stable at 14% for the quarter.
  • 5Non-GAAP net income per diluted share increased by 27% in the quarter and 23% for the six-month period, showcasing underlying operational strength.
  • 6Free cash flow grew significantly, up 51% to $747 million in the quarter and 23% to $1.35 billion in the six-month period.
  • 7The company maintained a strong liquidity position with $6.4 billion in cash, cash equivalents, and available-for-sale investment securities as of June 30, 2017, with no outstanding borrowings on its $2 billion credit facility.

Frequently Asked Questions

PayPal's revenue growth is primarily driven by the increase in Total Payment Volume (TPV) processed through its platform. This growth is supported by the expansion of its user base (active customer accounts) and increased payment transaction frequency per user. The company also generates revenue from other value-added services, including interest and fees from its PayPal Credit loan portfolio.

The primary drivers of operating expenses are transaction expenses and transaction/loan losses, which have increased in line with TPV growth. Other significant expenses include customer support, sales and marketing, product development, and general administrative costs. The company is managing these expenses through operational efficiencies, as indicated by its stable operating margins in key periods, and by investing in growth initiatives. Non-GAAP measures help to provide a clearer view of core operational performance by excluding items like stock-based compensation and restructuring costs.

PayPal operates in a highly regulated environment and acknowledges the potential impact of evolving regulations and international events like Brexit. The company actively manages its foreign currency exposure through hedging programs and monitors regulatory developments closely. They are evaluating the potential impact of new regulations, such as the EU's General Data Protection Regulation (GDPR), and have established compliance programs to address these challenges. The company's international operations, particularly in the UK, are monitored for potential impacts from Brexit, and their financial reporting reflects revenue contributions from various regions.

PayPal offers credit products like PayPal Credit and PayPal Working Capital. The company manages risks in these portfolios through various credit assessment models (e.g., FICO scores for consumers, PRM scores for merchants) and by monitoring loan quality indicators, delinquency rates, and charge-offs. The provision for loan losses is recognized to account for potential credit losses. The company is also exploring partnerships and third-party funding sources to manage the liquidity needs associated with its growing credit portfolio.