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PayPal Holdings Inc. has changed in ways large and small since Dan Schulman took over as chief executive two years ago, but perhaps its biggest change is its willingness to embrace collaboration with financial institutions, payment networks, and others once seen as keen rivals. At least some vindication of that new approach emerged Wednesday as PayPal reported strong results for its second quarter ended June 30.
Both revenue and payment volume posted new milestones, with revenue at $3.14 billion, up 18% from a year ago, and volume at $106.4 billion, a 23% increase. As Schulman pointed out in an afternoon conference call with stock analysts, this is the first time PayPal has exceeded $3 billion in revenue and $100 billion in total volume in a quarter. He also hinted more good news is coming. “We’re just scratching the surface of the opportunities in front of us,” he told the analysts.
Wall Street seemed to like what it heard. Less than an hour after the call ended, PayPal’s stock had reached $60.05 per share in after-hours trading, an all-time high for the San Jose, Calif.-based company, which spun out of eBay Inc. and went public in 2015.
The good news extended to other numbers, as well. Active accounts hit 210 million, up 12% since the second quarter last year, while the transaction count rose a robust 23% to 1.78 billion. Payment transactions per active account, a closely watched metric at PayPal since Schulman’s arrival from American Express Co., continued to inch up, reaching 32.3 from 29.4 a year ago.
The company also reported some progress in pushing its hot person-to-person payment service, Venmo, into stores as a payment method. The service logged more than $8 billion in P2P volume in the quarter. Now, merchants are starting to accept Venmo, including Forever 21 and Lululemon. “We’re in the middle of a ramp on that,” reported chief operating officer Bill Ready, who sat in on the call. “We’ll progress that to the millions of PayPal merchants over the coming quarters.” Without giving specifics, he added, “We feel really good with how that’s scaling so far.”
Moving Venmo to merchant checkouts is important because it could shore up one of PayPal’s weaknesses. Its transaction take rate, the fraction of transaction volume that it keeps, continued to drop in the quarter, down 11 basis points from a year ago to 2.58%. PayPal officials blame no-fee P2P activity, but this could change drastically as merchants start paying fees to accept Venmo.
With 17 million active merchant accounts accepting PayPal, the potential is significant, particularly if “millions” of merchants, a number also used by Schulman, do sign up. “We’re quite encouraged by the early results,” Schulman said.
But the big engine lately appears to be partnership deals. PayPal has entered 22 of them since early last year, with the latest being an agreement announced Wednesday with Bank of America Corp. that will include tokenized BofA cards inside PayPal wallets for in-store transactions. Those payments will rely on an upcoming service involving near-field communication technology, though PayPal refuses to give details about its NFC plans.
The partnership deals typically enable the partner’s payment brand or wallet on PayPal’s platform, expanding payment choices for PayPal users. In its agreements with Visa Inc. and Mastercard Inc., PayPal also gained access to the networks’ tokenization engines, which could help PayPal realize a long-term ambition to reach the physical point of sale.
Recent partners include Alphabet Inc.’s Android Pay, Apple Inc., Samsung Electronics Co. Ltd.’s Samsung Pay, JPMorgan Chase & Co., and Citigroup Inc. Schulman also said PayPal has reached a partnership agreement with Baidu, a China-based Web-services company. “We feel good about the current trend right now,” Schulman said. “We’ve never partnered before. We can partner now.”
But, with nearly two dozen deals done, Schulman also indicated a pause in the partnership campaign. “I think we’ve announced enough partnerships for right now,” he told an analyst who asked about coming agreements.
