PayPal Holdings (NASDAQ: PYPL) was spun off from eBay in mid-2015, under pressure from Carl Icahn and other activist investors who were eager to unlock shareholder value. If they were hoping for instant gratification, they were in for a disappointment. Over the next year and a half, PayPal's stock barely kept pace with the broader market, but the company was setting the stage for a stunning 2017.
Investor couldn't have asked for much more from the payments processor. The company expanded existing relationships, invested in new businesses, and took a money-losing platform and turned it on its head, all on the way to its best year yet.
What do you want in a partner?
It was an action-packed year for PayPal, and if one thing stood out most of all, it was the company's vast array of partnerships.
PayPal partnered or extended existing relationships with the biggest payment processors including Visa, Mastercard, and Discover Financial Services. The company also forged alliances with technology companies Apple, Alphabet's Android, Samsung, and Chinese search giant Baidu to include its payment option in their digital wallets. PayPal also struck accords with major credit card issuers Chase, Citigroup, and Bank of America. The result of his plethora of alliances was to expand PayPal's reach beyond just websites and into apps, brick-and-mortar stores, and across international borders.
Venmo became a verb
Venmo, PayPal's social payments platform, was a hit with millennials and became the payment option of choice for sending money to family and friends. The company recently announced that over the prior 12 months, Venmo accounted for $30 billion of PayPal's total payment volume, up 106% over the prior-year period.
PayPal had yet to make any money from Venmo, but that recently changed. In October 2017, the company announced it would begin rolling out the service to merchants, and Venmo could be used as a payment option at more than 2 million U.S. retailers -- almost anywhere PayPal is accepted -- providing the company with a potentially lucrative new revenue stream. We should hear more from PayPal in the coming months regarding its progress on that front.
Expanding beyond payments
PayPal made several moves during the year to expand its reach beyond payments. In February, PayPal announced that it would purchase payment processor TIO Networks and Swift Financial to expand its reach into business financing into the area of working capital loans. Most recently, the company announced a partnership with Acorns, the fastest growing micro-investing app in the country, taking the company into the realm of personal finance.
It showed in the results
PayPal's strategy of giving the customer more choices is paying off. In its 2017 third quarter, PayPal's customer accounts increased by a record-breaking 8.2 million, up 88% over the prior-year quarter, increasing its customer base to 218 million. Those customers were also spending more. The number of payment transactions per active account grew to 32.8, a 9% year-over-year increase.
It wasn't just customer metrics that improved, either. PayPal's revenue jumped to $3.24 billion, up 21% year over year, beating analyst's estimates as well as its own forecast. Net income of $380 million also exceeded expectations, producing earnings per diluted share of $0.46, up 31% over the prior-year quarter.
Those impressive financial results were mirrored by a rising stock price, which soared a whopping 86% last year.
By expanding the reach of its ever-growing partnerships, providing more options to merchants, and growing its customer engagements -- that's how PayPal crushed it in 2017.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Apple, Baidu, and PayPal Holdings. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Apple, Baidu, Mastercard, PayPal Holdings, and Visa. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.