10-QPeriod: Q2 FY2019

PayPal Holdings, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 25, 2019For Securities:PYPL

Summary

PayPal Holdings, Inc. reported strong financial performance for the second quarter and first half of 2019, demonstrating significant growth in net revenues and net income. Net revenues increased by 12% year-over-year for both the three and six-month periods, driven by a substantial 24% and 23% increase in Total Payment Volume (TPV), respectively. This growth was primarily fueled by an increase in active accounts and a higher number of payment transactions, with particularly strong performance from PayPal, Braintree, and Venmo. Despite an increase in operating expenses, largely due to investments in growth and the impact of acquisitions, PayPal managed to improve its operating income and net income. The company also saw a notable increase in "Other income (expense), net," significantly boosted by unrealized gains on strategic investments. The balance sheet reflects a strong position with substantial cash and investments, though there was a decrease in cash and cash equivalents compared to the prior year-end. The company also continued its share repurchase program, demonstrating a commitment to returning value to shareholders.

Financial Highlights

52 data points
Beta

Revenue

$4.30B

Net Income

$823.00M

19.1% Net Margin

EPS (Diluted)

$0.69

Total Assets

$48.39B

Cash & Equivalents

$4.91B

Free Cash Flow

$1.03B

Financial Statements
Beta
Revenue$4.30B
Operating Expenses$3.60B
Operating Income$705.00M
Interest Expense$27.00M
Net Income$823.00M
EPS (Basic)$0.70
EPS (Diluted)$0.69
Shares Outstanding (Basic)1.18B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net revenues grew 12% year-over-year for both the three and six months ended June 30, 2019, reaching $4.3 billion and $8.4 billion respectively.
  • 2Total Payment Volume (TPV) saw robust growth, increasing by 24% for the quarter and 23% for the first half of the year.
  • 3Net income surged by 56% to $823 million in the second quarter and by 44% to $1.49 billion in the first half.
  • 4Operating income also showed strong growth, up 23% for the quarter to $705 million and 11% for the first half to $1.22 billion.
  • 5"Other income (expense), net" significantly increased, primarily due to unrealized gains on strategic investments, contributing $238 million in the quarter and $437 million in the first half.
  • 6The company generated substantial cash from operating activities, totaling $2.2 billion for the first six months of 2019, a significant improvement from the prior year's net cash used.
  • 7Despite an increase in debt, the company maintained an investment-grade credit rating from major agencies.

Frequently Asked Questions

The primary driver of revenue growth was the increase in Total Payment Volume (TPV), which grew by 24% compared to the prior year's second quarter. This growth was supported by an increase in active accounts and a higher number of payment transactions, particularly from PayPal, Braintree, and Venmo products.

Operating expenses increased by 10% for the quarter, which was less than the revenue growth rate. This was achieved despite increases in transaction expense, customer support, sales and marketing, and technology development, partly offset by a decrease in restructuring and other charges. The company also benefited from a significant increase in 'Other income (expense), net,' largely due to gains on strategic investments.

As of June 30, 2019, the company held $8.6 billion in cash, cash equivalents, and investments. However, cash and cash equivalents alone decreased from $7.575 billion at the end of 2018 to $4.909 billion. The company also has outstanding debt, with $2.5 billion under its Amended Credit Agreement, but maintained an investment-grade credit rating.

Acquisitions completed in 2018 collectively contributed approximately two percentage points to revenue growth and four percentage points to operating expense growth for both the three and six-month periods. While they contributed to revenue and expense growth, their impact on operating income growth was negative, approximately ten percentage points for both periods.