PayPal Is Beginning to Deploy Its Massive Cash Resources
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PayPal Holdings (NASDAQ: PYPL) continued to impress across a range of vital metrics upon release of its second-quarter 2018 earnings report on July 25. The payments processing giant also displayed the strength of its operational cash flow and growing balance sheet resources over the last three months. We'll dive into the quarter's details after reviewing headline numbers directly below.
PayPal: The raw numbers
| Metric | Q2 2018 | Q2 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $3.86 billion | $3.14 billion | 23% |
| Net income from continuing operations | $526 million | $411 million | 28% |
| Diluted earnings per share | $0.44 | $0.34 | 29.4% |
Data source: PayPal Holdings Inc.
What happened this quarter?
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Payments revenue continued to exhibit an extremely strong trend. Total payments volume (TPV), which measures the aggregate payments volume transacted over PayPal's platform in a given period, climbed 29% against the prior-year quarter, to $139 billion. The company reported 2.3 billion transactions processed, an increase of 28%.
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Net new active accounts expanded by 7.7 million, outpacing the second quarter of 2017 by 18%. Sequentially, this result was slightly off the pace of 8.1 million new accounts added in the first quarter of 2018.
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Mobile payments volume expanded by 49% to $54 billion. Transactions processed over mobile devices accounted for 39% of overall TPV during the quarter.
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Total Person to Person (P2P) volume jumped by 50% over the prior year, to $33 billion, and accounted for 24% of TPV.
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PayPal's popular social payments app Venmo grew volume by 78% over the prior-year quarter, reporting $14 billion of TPV. The monetization of Venmo continues: In June, Venmo introduced its first branded debit card via PayPal's primary card network partner Mastercard.
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PayPal added 600,000 merchants to its system, bringing its total number of global merchants to 19.5 million at the end of the period.
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Shortly after quarter-end, on July 2, PayPal completed the sale of its consumer credit receivables portfolio to Synchrony Financial (NYSE: SYF), for total consideration of $6.9 billion.
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PayPal's transaction "take rate," the amount of revenue the company makes on the transactions it processes, declined by 19 basis points to 2.38%. The metric is derived by dividing transaction revenue by TPV. Management attributed the marginal decline in take rate to higher P2P volume and a headwind from hedging losses compared to the prior-year quarter.
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Operating expenses climbed as PayPal invested more in product development and customer service, and as it incurred costs related to the sale of its credit receivables to Synchrony. However, strong top-line growth outpaced the rise in non-transaction expenses: Operating margin climbed roughly one percentage point against the second quarter of 2017, to 14.8%. More impressively, after adjusting for $116 million in restructuring charges, the company's operating margin hit 17.8%, against 13.7% in the second quarter of 2017.