Paypal Profit Rises as User Growth and Volume Hit Milestones -- Update

By Peter Rudegeair Features Dow Jones Newswires

PayPal Holdings Inc. said Wednesday that new milestones reached in user growth and payment volume helped boost its second-quarter profit by 27%.

Continue Reading Below

The San Jose, Calif.-based payments company reported a quarterly profit of $411 million, or 34 cents a share. That compares with a profit of $323 million, or $0.27 a share, in the same period of 2016. Excluding certain items, the company's per-share earnings rose to 46 cents, above the estimate of analysts polled by Thomson Reuters.

A flurry of deals that PayPal reached with banks, technology firms and credit-card companies to expand its reach resulted in its total payment volume exceeding $100 billion for the first time in the second quarter. Active customer accounts increased by a net of 6.5 million to 210 million, the largest quarterly gain since PayPal split from eBay Inc. two years ago.

New partnerships the company announced on Wednesday include one with Baidu Inc. that would allow 100 million users of the Chinese search giant's mobile wallet to shop at PayPal merchants outside of China. A separate deal announced Wednesday will make it easier for Bank of America Corp.'s customers to add their credit cards to PayPal accounts.

"It's hard to overstate the difference in the relationships we now have with companies across multiple sectors who many have once viewed as potential competitors," PayPal Chief Executive Dan Schulman said on a conference call with analysts.

As part of some of these agreements, PayPal agreed not to default users into funding their PayPal transactions with the cheapest option to the company, usually a bank transfer. As a result of that decision and overall growth in payment volumes, PayPal's transaction expense increased in the second quarter by nearly one-third to $1.06 billion.

Continue Reading Below

The share of revenue PayPal takes from each transaction fell to 2.58% from 2.69% a year ago. A doubling in transaction volume that was processed by Venmo, PayPal's digital person-to-person payments service, accounted for much of that decline. Venmo handled $8 billion in volume during the second quarter, but the unit doesn't charge users anything for the majority of those transactions.

Over all, second-quarter revenue rose 18% to $3.14 billion. That was above the $3.09 billion that analysts were expecting.

Revenue from PayPal's lending activities and its other value-added services rose 18% from a year earlier to $387 million; the company's consumer-loan portfolio expanded by around 31% to $5.5 billion. PayPal has been weighing a sale of that portfolio to free up cash.

Mr. Schulman said in an interview that he is encouraged with discussions with potential buyers and companies that would fund PayPal loans in the future. He didn't, though, provide a time frame of when any new strategy would be enacted.

Shares in PayPal increased around 2% in aftermarket trading. Since the start of the year, PayPal shares have risen 49%, compared with an 11% rise in the S&P 500 index.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

July 26, 2017 20:35 ET (00:35 GMT)