PayPal’s Three-Year Forecast Eases Concern About Card Pacts

Updated on
  • Digital payments company sees revenue, volume growth
  • Business keeps adding new users despite more competition

PayPal Holdings Inc. forecast higher revenue growth and stable profit in coming years, easing investor concern that deals it struck with credit card companies won’t dent margins.

PayPal shares rose a much as 4.5 percent in extended trading. The stock closed at $40.09 earlier on Thursday.

Key Points

  • PayPal said it will have "stable to growing" operating profit margins over the next three years. That suggested few negative effects from agreements it made recently with payment networks Visa Inc. and MasterCard Inc. that investors worried could cut its profitability.
  • The company did say there would be "incremental" expenses from the new pacts, but that will be offset by other revenue and cost-saving initiatives. 
  • PayPal forecast annual revenue growth of 16 percent to 17 percent over the next three years. That was up from a previous company estimate of 15 percent, executives said on a conference call with analysts Thursday.
  • Revenue in the current quarter will be $2.92 billion to $2.99 billion. Analysts estimated $2.98 billion.
  • Adjusted profit per share will be 40 cents to 42 cents. Analysts were looking for a profit of 42 cents.
  • Active customer accounts were 192 million in the third quarter, up from 188 million in the second quarter.

The Big Picture

PayPal split from online marketplace operator EBay Inc. last year to help it evolve from a payment button on websites into a broader service that lets people find and pay merchants and send money to friends through smartphone apps. Chief Executive Officer Dan Schulman is prioritizing growth over profitability to compete against Apple Inc., Samsung Electronics Co. and other larger technology companies looking to capture payments business as shoppers shift from cash and checks to digital transactions. PayPal recently signed agreements with Visa and MasterCard to increase PayPal’s presence in physical stores, where it hopes to lure shoppers with time-saving features such as apps that let them order ahead and skip lines. PayPal shares fell after the first of these deals was announced in July.

Street Takeaways

  • "This shows that the credit card agreements about consumer choice are a very good strategic move and even the short-term impact is nonexistent," Gil Luria, analyst at Wedbush Securities Inc., said after Thursday’s results and forecast.

The Detail

  • PayPal said third-quarter revenue increased 18 percent to $2.67 billion. Analysts estimated $2.65 billion.
  • The payments provider reported adjusted profit per share of 35 cents. That compared to the average analyst estimate of 35 cents.
  • PayPal processed 1.5 billion transactions in the latest period, up 24 percent.
    (Adds more details on PayPal forecast in fourth paragraph.)
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