PayPal's pandemic winning streak continues; Venmo reaches $44 billion in volume

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Reflecting the rapid transition to digital payments, PayPal has reported its strongest growth in total payment volume (TPV) and revenue in its history, coupled with strong growth for Venmo, its P2P app.

Building on a record-breaking second quarter performance, PayPal's revenue in the third quarter of 2020 grew to $5.46 billion, up 25% from the same quarter one year earlier; and TPV reached $247 billion in the quarter, up 38% from $179 billion in the same quarter one year earlier (36% on an FX neutral basis). Supporting this explosive growth was a new record for transactions processed, at 4 billion for the quarter — the highest level in the company’s history.

This performance puts PayPal in stark contrast to many other companies that saw earnings plunge at the start of the pandemic. Even other payment companies, with strong digital capabilities, suffered if they were active in hard-hit verticals such as travel. By comparison, PayPal's second quarter (the first full quarter since the start of the pandemic) was its best since the company went public in 2015.

“I’m pleased to say that PayPal had a very strong quarter across all of our key operating and financial metrics,” said Dan Schulman, PayPal’s president and CEO, in the company’s earnings call Monday. “Our performance is particularly noteworthy given the macro environment. We are battling a pandemic that shows no signs of slowing down.”

In detailing the performance, Schulman spotlighted Venmo. There were 65 million users on Venmo who drove a record $44.3 billion in TPV, up 61% year-over-year. Venmo continued to exceed executives’ expectations, and PayPal is now forecasting revenue for Venmo to approach $900 million in 2021, driven by investments in new capabilities. Schulman noted that the long-unprofitable Venmo will make a positive contribution to transaction margin dollars in 2021, as new capabilities are launched for the platform. Later in the call, Schulman said PayPal expects Venmo to reach profitability in 2022.

PayPal is at an inflection point in its history to help the world drive financial inclusion and keep people from falling into extreme poverty, Schulman said. He added that emerging technologies, coupled with mobile phones and financial platforms such as PayPal’s, can drive a future of inclusion and financial health where everyone, not just the affluent, can participate in the digital economy.

“We added 15.2 million net new actives [NNAs] in Q3, our second highest quarter for organic customer acquisitions after last quarter’s 21.3 million NNAs,” said Schulman. “We added over 1.5 million new merchants in the quarter — over two times our pre-COVID rate, and we now have 28 million merchants on our platform. We ended Q3 with 361 million active accounts and we remain on track to end the year with a record 70 million NNAs.”

PayPal’s earnings per share (EPS) for the third quarter reached $1.07, on a non-GAAP basis, up 41% from the same quarter a year earlier. The consensus analyst expectation was $0.94 EPS, according to Money/CNN Business.

PayPal expects to have the Venmo credit card fully rolled out in the first quarter, with a personalized QR code printed on the card, which will also be contactless.

The company expects to have the Venmo and PayPal apps undergo a fundamental transformation in 2021 to drive greater customer engagement, with an expected suite of products including enhanced direct deposit, bill pay, investment alternatives including crypto, budgeting tools, check cashing, buy now, pay later functionality along with all of Honey’s shopping tools.

“Our goal is to be the most ubiquitous payment capability in the offline market,” said Schulman. “Through a combination of QR codes, contactless cards, NFC inside our mobile apps, as well as our embedded PayPal wallet experiences inside Google Pay and Samsung Pay, among others.”

Schulman noted that PayPal’s move into the physical retail world will be a multi-year journey, but that PayPal is already seeing rapid adoption of its QR code solution, with 10 major retailers signed including CVS, Nike, Tumi, Bed Bath & Beyond and Samsonite. PayPal claimed that just with the signed deals alone, it will enable its QR code to be accepted at millions of merchant locations. PayPal also anticipates ending the year with 500,000 small and micro merchants accepting its QR codes.

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Earnings P-to-P payments Venmo PayPal Coronavirus Digital payments Mobile payments