PayPal Announce Q3 Growth For 2021 But Managing Expectations For 2022

Last night PayPal was the latest tech giant from the eCommerce world to release their Q3 earnings report for 2021. The key number is that they reported revenue growth of 13% for Q3 and total payment volume (TPV) of $310 billion, growing 26%. They also added 13.3 million Net New Active Accounts (NNAs) ending the quarter with 416 million active accounts.

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The big attention-grabbing headline however was the news that from 2022 Amazon will start accepting Venmo, the PayPal-owned mobile payment service. This marks the full separation from eBay after the initial split six years ago. As eBay has been transitioning to managed payments, PayPal commented how in Q3 2021 volume on eBay dropped 45% and eBay transactions now made up less than 4% of total revenues.

“Our third-quarter results show solid growth on top of a record year. The strength of PayPal’s two-sided platform and ubiquity in our core markets has set us up to grow at scale, expand our work with existing merchants and attract new partners. We’re thrilled that we are teaming up with Amazon to enable customers in the U.S. to pay with Venmo at checkout.”

Dan Schulman, President & CEO, PayPal

However, this news was not enough to distract from PayPal missing some expectations and really managing expectations for Q4 and for 2022. For the fourth quarter, PayPal has set adjusted earnings of $1.12 per share on net revenue of between $6.85 billion and $6.95 billion. Wall Street analysts had expected $1.27 in adjusted earnings per share on $7.24 billion in revenue. Revenue guidance for the year was revised down to 18%, putting it in the range of $25.3 billion to $25.4 billion, whereas analysts had expected $25.78 billion.

The company said on the call that revenue for the year will increase about 18%. This would equal full-year sales of close to $30 billion. However, some analysts were apparently projecting revenue of $31.6 billion. PayPal highlighted supply chain constraints as well as general concerns around the economy and spending habits going into the new year as the managed expectations of their forward-looking statements.

You can see some of the highlights below and the full report from PayPal here.

PayPal Financial Highlights

• Net revenue of $6.18 billion, growing 13% on a spot and FXN basis
• GAAP operating margin of 16.9%, declining 103 basis points;
  non GAAP operating margin of 23.8%, declining 342 basis points
• GAAP EPS of $0.92, up 7%; non-GAAP EPS of $1.11, up 4%
• GAAP EPS includes net gains of $0.13 on PayPal’s strategic investment portfolio for both Q3’21 and Q3’20, driven primarily by MercadoLibre

“Our third-quarter performance demonstrates the strength of our diversified platform, our global reach, and the scalability of our business. The powerful and accelerating secular tailwinds of increasing eCommerce penetration and cash displacement have helped to advance our leadership position.”

John Rainey, CFO & EVP Global Customer Operations, PayPal

Operating Highlights

Q3’21: Significant customer and engagement growth

• 13.3 million NNAs added, bringing total active accounts to 416 million, up 15%
• 4.9 billion payment transactions, up 22%
• $310 billion in TPV, up 26% on a spot basis, and 24% FXN
• Merchant Services volume grew 31% on a spot basis, and 30% FXN, representing 97% of TPV
• eBay Marketplaces volume declined 45% on a spot basis, and 46% FXN, representing 3% of TPV, compared to 7% in the prior year period
• Venmo processed approximately $60 billion in TPV, growing 36%
• 44.2 payment transactions per active account on a trailing twelve months basis, growing 10%

Balance Sheet and Liquidity

Strengthening balance sheet and strong cash flow generation

• Cash, cash equivalents, and investments totaled $20.0 billion as of September 30, 2021
• Debt totaled $8.9 billion as of September 30, 2021
• Generated cash flow from operations of $1.51 billion, up 15%, and free cash flow of $1.29 billion, up 20%
• In Q3’21, PayPal repurchased approximately 1.27 million shares of common stock, returning $350 million to stockholders

Strategic Initiatives & Business Updates

Rolling out new consumer experiences and expanding internationally

• Teaming up with Amazon to enable customers in the U.S. to pay with Venmo at checkout. Starting next year, customers will be able to make purchases on Amazon.com and the Amazon mobile shopping app using their Venmo accounts.
• In October, closed the acquisition of Paidy, a leading two-sided payments platform and provider of buy now, pay later solutions in Japan for approximately $2.7 billion, principally in cash. The acquisition of Paidy will enhance PayPal’s capabilities and relevance in the domestic payments market in Japan, the third largest ecommerce market in the world, complementing the company’s existing cross-border ecommerce business in the country.
• Introduced new, personalized PayPal app with features and services such as in-app shopping tools, deals and rewards, up to two-day early access Direct Deposit, and bill pay. Announced plans to start rolling out PayPal Savings to customers in the U.S. in the coming months.
• Expanded cryptocurrency product offerings, launching the ability to buy, hold, and sell cryptocurrency in the UK and rolling out Cash Back to Crypto, a new way for Venmo Credit Card customers to automatically purchase cryptocurrency from their Venmo account using cash back earned from their card purchases.

Financial Guidance

Q4’21 Guidance

• PayPal expects net revenue to be in the range of ~$6.85 billion to ~$6.95 billion, representing growth of ~12%-14% at current spot rates
• PayPal expects GAAP diluted earnings per share to be ~$0.79, compared to $1.32 in the prior year period, and for nonGAAP diluted earnings per share to grow ~4% to ~$1.12
• GAAP EPS guidance does not include any expectation of net realized and unrealized gains and losses on PayPal’s strategic investment portfolio
• In the fourth quarter of 2020, GAAP EPS included a net gain of $0.60 on PayPal’s strategic investment portfolio
• Estimated non-GAAP amounts for the three months ending December 31, 2021 reflect adjustments of approximately $530 million, including estimated stock-based compensation expense and related payroll taxes of approximately $410 million

FY’21 Guidance

• PayPal expects to add ~55 million NNAs, including ~3 million active accounts from the acquisition of Paidy
• PayPal expects TPV growth to be in the range of ~33%-34% at current spot rates and ~31%-32% on an FXN basis
• PayPal expects net revenue to be in the range of ~$25.3 billion to ~$25.4 billion, representing growth of ~18% at current spot rates and ~17% on an FXN basis
• PayPal expects GAAP EPS to be ~$3.62, and non-GAAP EPS to grow ~19% to ~$4.60
  • GAAP EPS guidance includes ~$0.24 of net realized and unrealized gains on PayPal’s strategic investment portfolio
  • In 2020, GAAP EPS included a net gain of ~$1.24 on PayPal’s strategic investment portfolio
  • Estimated non-GAAP amounts for the twelve months ending December 31, 2021 reflect adjustments of approximately $2.1 billion, primarily representing estimated stock-based compensation expense and related payroll taxes of approximately $1.6 billion