PayPal Opens Venmo App to Online Stores as Results Beat Expectations -- Update
January 27 2016 - 07:38PM
Dow Jones News
By Telis Demos
PayPal Holdings Inc. said its peer-to-peer payments app Venmo
can now be used to buy from online stores, as the payments company
aims to expand its transactions fast enough to combat intense
competition and falling prices.
PayPal shares rose 5% in after-hours trading, to $33.15,
following its quarterly earnings results announcement Wednesday.
PayPal said revenue for the fourth quarter was $2.6 billion,
increasing 17% year-over-year and topping analysts' consensus of
$2.5 billion, according to FactSet.
Since its separation from eBay Inc. last year, PayPal shares
have dropped 14%, as investors and analysts have worried about
whether the company can expand quickly enough to justify its market
value, now roughly $40 billion, once separated from eBay's giant,
captive online marketplace.
The San Jose, Calif., company earned $1.28 a share in the fourth
quarter, above the consensus forecast of $1.27. PayPal also on
Wednesday announced a $2 billion share buyback.
Revenue growth was driven by a record number of new active
users, 6.6 million, added in the fourth quarter, plus an overall
23% year-over-year growth in transaction payment volume, to $82
billion in the quarter. PayPal also gained a 1-percentage-point
boost in revenue growth from its acquisition of online money
transfer firm Xoom last year.
Analysts recently have expressed concern that as PayPal seeks to
add new merchants to boost revenue, it will need to compromise on
pricing.
It also is branching out during a time of intense competition in
payments, with new entrants such as Apple Inc. and dozens of
"fintech" startups promising new and inventive ways for consumers
to pay for things or transfer money.
"It's a combination of competition and pushing harder and harder
into large merchants with pricing power," said Craig Maurer,
analyst at Autonomous Research. "They have to get volume to grow
faster and faster to battle continued to compression."
Venmo, PayPal's payment app that allows individuals to transfer
money between themselves and make social media postings about it,
has seen explosive transaction-volume growth recently, with 174%
year-over-year growth in the fourth quarter to $2.5 billion. But it
has historically generated little in revenue for PayPal.
PayPal Chief Executive Dan Schulman told analysts Wednesday that
while the company "expects little financial impact" from Venmo's
transaction volume expansion in 2016, it is "the most beloved way
to pay for millennials." He said that over the next couple of
years, it would be a "counterpressure" to falling revenue yield on
transactions.
PayPal is working to demonstrate it can capture new users for
its online and mobile payments service beyond eBay. Though PayPal
has been assured that roughly 80% of eBay's gross merchandise sales
will be routed through the payments company, it is free to seek out
agreements with new vendors.
The new Venmo merchant initiative is the first big push to
monetize the service. PayPal announced two initial partners,
food-delivery service Munchery and sports-tickets service
Gametime.
PayPal also revealed a new partnership with First Data Corp.,
which works with large merchants to accept credit and debit cards,
to add more locations where PayPal payments can be accepted in
stores.
The firm's new lending initiatives are also growing, PayPal
said. PayPal Credit, which offers credit to consumers to make
purchases, is now available at "millions" of stores, and PayPal's
short-term credit offered to businesses "tripled" in origination
volume last year, Mr. Schulman told analysts.
Mr. Schulman said PayPal's growing number of with merchant
relationships and suite of payment methods will give the company an
edge over rivals.
"Tapping versus swiping isn't a winning strategy," said Mr.
Schulman, referring to the advent of mobile pay apps via Apple,
some banks, and individual merchants. "The more confusing it is out
there, the more people turn to brands they trust."
Ezequiel Minaya contributed to this article.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
January 27, 2016 19:23 ET (00:23 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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