10-QPeriod: Q3 FY2018

PayPal Holdings, Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 23, 2018For Securities:PYPL

Summary

PayPal Holdings, Inc. reported strong revenue growth of 14% year-over-year for the third quarter of 2018, reaching $3.7 billion. This growth was primarily driven by a 24% increase in Total Payment Volume (TPV), indicating robust user engagement and transaction activity on its platform. The company also demonstrated solid profitability, with net income rising 15% to $436 million, and diluted earnings per share increasing to $0.36. Key to this quarter's performance was the significant increase in cash from operating activities, up 364% to $4.7 billion, bolstered by a large benefit from the reclassification of the U.S. consumer credit portfolio post-sale. Significant strategic acquisitions, including iZettle and Simility, were completed in 2018, aimed at expanding PayPal's in-store presence and enhancing fraud prevention capabilities. While the company's top-line growth is encouraging, investors should note the impact of the sale of its U.S. consumer credit receivables portfolio to Synchrony Bank, which led to a decrease in other value-added services revenue but freed up balance sheet capacity. Operating expenses also increased, particularly transaction expenses which grew in line with TPV, reflecting the costs associated with higher transaction volumes. The company continues to invest in its platform and expand its services through strategic acquisitions, positioning itself for future growth in the evolving digital payments landscape.

Financial Highlights

53 data points
Beta

Revenue

$3.68B

Net Income

$436.00M

11.8% Net Margin

EPS (Diluted)

$0.36

Total Assets

$43.72B

Cash & Equivalents

$8.15B

Free Cash Flow

$4.45B

Financial Statements
Beta
Revenue$3.68B
R&D Expenses$269.00M
Operating Expenses$3.19B
Operating Income$490.00M
Interest Expense$22.00M
Net Income$436.00M
EPS (Basic)$0.37
EPS (Diluted)$0.36
Shares Outstanding (Basic)1.18B
Shares Outstanding (Diluted)1.20B

Key Highlights

  • 1Net revenues increased by 14% to $3.7 billion for the third quarter of 2018, driven by a 24% increase in Total Payment Volume (TPV).
  • 2Net income rose by 15% to $436 million, with diluted EPS growing to $0.36 from $0.31 in the prior year period.
  • 3Cash provided by operating activities saw a substantial increase of 364% to $4.7 billion for the nine months ended September 30, 2018, significantly influenced by the sale of the U.S. consumer credit portfolio.
  • 4The company completed significant acquisitions in 2018, including iZettle for $2.2 billion and Simility for $107 million, aimed at expanding its market presence and capabilities.
  • 5Transaction and loan losses decreased by 19% year-over-year, largely due to the sale of the U.S. consumer credit receivables portfolio.
  • 6Active accounts grew by 15% to 254 million, and payment transactions increased by 27% to 2.5 billion for the quarter, indicating continued platform adoption.
  • 7The company repurchased approximately $2.9 billion of its common stock in the first nine months of 2018 under its stock repurchase program.

Frequently Asked Questions

The sale of the U.S. consumer credit receivables portfolio to Synchrony Bank in July 2018 significantly impacted the financial results. While it led to a decrease in 'other value added services' revenue due to the loss of interest and fee income from this portfolio, it also generated a substantial benefit to cash from operating activities and reduced loan losses. PayPal now earns a revenue share on the portfolio owned by Synchrony Bank.

The acquisition of iZettle for $2.2 billion was aimed at expanding PayPal's in-store presence and strengthening its Payments Platform to support small businesses in an omnichannel retail environment. The acquisition of Simility for $107 million was intended to enhance PayPal's fraud prevention and risk management solutions for merchants globally.

TPV grew by 24% year-over-year for the third quarter of 2018, reaching $143 billion. This growth was driven by a 27% increase in the number of payment transactions. However, transaction revenues grew at a slower pace (17%) than TPV, influenced by a higher proportion of lower-rate person-to-person (P2P) transactions and cross-border transactions, as well as a larger share of TPV from large merchants with lower fee structures.

As of September 30, 2018, PayPal held $10.3 billion in cash, cash equivalents, and investments. A significant portion, $9.2 billion, was held by foreign subsidiaries. The company also has access to credit facilities totaling $2.0 billion (under the 2015 Credit Agreement, as the 2017 Credit Agreement had no remaining capacity) and $350 million in uncommitted credit facilities. PayPal's liquidity is also supported by strong operating cash flows and substantial share repurchase programs.