PayPal Holdings, Inc. (NASDAQ: PYPL) has been on a tear over the last couple of years. The company has been transforming the digital-payments space in ways that many hadn't imagined, and its strategy is paying off in a big way.
PayPal reported earnings after the market closed on Thursday, exceeding analysts expectations on both the top and bottom lines, and raising its forecast for the full year. Investors cheered, sending the stock to an all-time high. Let's look at the numbers.
Impressive growth across the board
For the just completed third quarter, PayPal reported revenue of $3.24 billion, up 21% year over year, and up 22% on a currency-neutral basis. This exceeded the top end of the company's own forecasted range of $3.14 billion to $3.19 billion, while also beating analyst's consensus estimates for $3.18 billion.
PayPal reported net income of $380 million, growing 18% over the prior-year quarter. This produced adjusted earnings per diluted share of $0.46, an increase of 31% year over year. This exceeded the company's expectations for earnings in a range of $0.42 to $0.44 per share, while also surpassing analyst's consensus estimates of $0.43 per share.
It wasn't only financial metrics that surprised and delighted investors. PayPal added a record-breaking 8.2 million active customer accounts in the quarter, up 88% year over year, with its active customer base growing to 218 million. This also included more than 17 million merchant accounts.
Payments continued their torrid growth, up 26% over the prior-year quarter, to 1.9 billion transactions. Customer engagement also shined, with payment transactions per active account growing to 32.8, a 9% increase year over year.
PayPal processed $114 billion in total payment volume (TPV), an increase of 30% over the same period last year, or 29% on a currency neutral basis. Approximately 35% of the payment volume, or $40 billion, came via mobile devices, which represented a whopping 54% increase year over year.
PayPal's secret weapon
Person-to-person (P2P) payment volume hit $24 billion, up 47% over the prior-year quarter, growing to 21% of the company's TPV. Over the past 12 months, Venmo, PayPal's P2P payment platform, accounted for $30 billion in its TPV, up 106% year over year. In the current quarter, Venmo processed $9 billion of TPV, up 93% over the same period last year.
PayPal hasn't yet made money from Venmo, but that's about to change. In a blog post earlier this week, PayPal's Chief Operating Officer Bill Ready announced that, beginning this week, customers could use their Venmo accounts to make payments at more than 2 million U.S. retailers -- almost anywhere that PayPal is accepted.
This will help Venmo evolve from a way to make payments to friends into a full-featured digital wallet. The platform is already a hit with millennials, who are a highly engaged demographic on the app. The potential for revenue growth from Venmo is huge, as its users begin to make payments to retailers, as well as each other.
PayPal made several announcements of interest to investors. Users of Facebook, Inc.'s (NASDAQ: FB) Messenger in the U.S. will be able to send money via the app, expanding a partnership that began last year. Users could already link their accounts and use PayPal while shopping on Messenger.
PayPal also announced a new agreement that allows Skype users in 22 countries to send money to each other via the app. The company has also expanded its agreement with Mastercard (NYSE: MA) into Canada, Europe, Latin America and the Caribbean, and the Middle East and Africa. PayPal also completed its acquisition of Swift Financial.
PayPal's CEO and President Dan Schulman commented on the quarter, saying:
Beat and raise
As a result of its continued strong growth, PayPal raised its full-year forecast for 2017. The company now expects revenue growth between 19% and 20% for the year in a range from $12.92 billion and $12.98 billion. This is significantly higher than the 15% to 17% the company originally forecast for the year.
PayPal has shown over the last few quarters that it has embarked on the right strategy for growth and is succeeding in ways investors couldn't have imagined. Venmo is now on deck to deliver future growth and take the company to even greater heights.
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