10-QPeriod: Q1 FY2020

PayPal Holdings, Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 7, 2020For Securities:PYPL

Summary

PayPal Holdings, Inc.'s first-quarter 2020 10-Q filing, ending March 31, 2020, reveals a significant year-over-year decline in net income, largely driven by a substantial increase in transaction and credit losses and a notable decrease in other income (expense), net, primarily due to unrealized losses on strategic investments. The company reported a net income of $84 million, a stark contrast to $667 million in the prior year period. This was accompanied by a decrease in diluted earnings per share to $0.07 from $0.56. Despite the profitability decline, total revenues saw a healthy increase of 12% to $4.6 billion, driven by an 18% rise in Total Payment Volume (TPV). The acquisition of Honey Science Corporation in January 2020 for $4 billion contributed to this revenue growth and also added goodwill and intangible assets to the balance sheet. However, operating expenses rose by 17%, outpacing revenue growth, leading to a reduced operating income and margin. The company also drew down $3 billion on its credit facility in March 2020, increasing its cash position in anticipation of economic uncertainty due to the COVID-19 pandemic.

Financial Highlights

51 data points
Beta

Revenue

$4.62B

Net Income

$84.00M

1.8% Net Margin

EPS (Diluted)

$0.07

Total Assets

$54.27B

Cash & Equivalents

$7.85B

Free Cash Flow

$1.22B

Financial Statements
Beta
Revenue$4.62B
Operating Expenses$4.22B
Operating Income$398.00M
Interest Expense$37.00M
Net Income$84.00M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.19B

Key Highlights

  • 1Net income decreased significantly by 87% year-over-year to $84 million ($0.07 per diluted share) from $667 million ($0.56 per diluted share).
  • 2Total net revenues increased by 12% year-over-year to $4.618 billion, driven by an 18% increase in Total Payment Volume (TPV).
  • 3Operating expenses increased by 17% year-over-year to $4.220 billion, outpacing revenue growth and leading to a lower operating margin of 9% compared to 13% in the prior year.
  • 4Transaction and credit losses more than doubled, increasing by 73% to $591 million, primarily due to a substantial increase in credit losses driven by macroeconomic forecasts related to COVID-19.
  • 5The company completed the acquisition of Honey Science Corporation in January 2020 for approximately $4 billion, adding significant goodwill ($2.96 billion) and intangible assets to the balance sheet.
  • 6Cash provided by operating activities increased by 46% to $1.504 billion, reflecting strong operational cash generation despite lower net income.
  • 7In response to COVID-19 uncertainty, PayPal drew down $3 billion from its $5 billion revolving credit facility in March 2020, increasing its cash reserves.

Frequently Asked Questions

The primary drivers for the significant year-over-year decrease in net income were a substantial increase in transaction and credit losses, particularly credit losses related to the anticipated impact of COVID-19 on loan portfolios, and a significant decrease in other income (expense), net, largely due to unrealized losses on strategic investments.

The acquisition of Honey Science Corporation in January 2020 added approximately $2.96 billion in goodwill and $717 million in intangible assets to the balance sheet. It also contributed to the 12% increase in total net revenues and influenced operating expenses, particularly in sales and marketing, and technology and development.

PayPal's liquidity position remains strong, with $1.504 billion in cash generated from operating activities during the quarter. The company drew down $3 billion on its credit facility in March 2020 to bolster its cash position amidst COVID-19 uncertainty. Management believes existing cash, expected operational cash flow, and access to capital markets are sufficient for foreseeable future needs, despite potential impacts from the pandemic on global commerce and financial markets.

Credit losses increased significantly by 525% year-over-year, primarily due to increased provisions for loans and interest receivable, reflecting macroeconomic forecasts for the impact of COVID-19 on unemployment. While the company has implemented measures to support borrowers, the full extent of the impact on credit quality and future losses remains uncertain due to the ongoing pandemic.