TLDR;
This video discusses PayPal's recent earnings report, which showed positive results across the board, including revised guidance on the upside. Despite this, the stock price initially dropped, leading to confusion. The video explores the key performance indicators, growth catalysts, and future expectations for PayPal, addressing concerns about free cash flow and take rates. It also highlights management's excitement about PayPal World and the potential for accelerated growth in the coming years, with a long-term prediction of the stock reaching $300 by 2030.
- PayPal had a strong quarter with beats across the board and revised guidance.
- Venmo's growth is accelerating, and Braintree is returning to growth.
- Management is excited about PayPal World and its potential to expand reach.
- The speaker predicts PayPal's stock will reach $300 by 2030.
Introduction: PayPal's Earnings and Stock Reaction [0:00]
PayPal's recent earnings report revealed positive results, surpassing expectations for the quarter and including an upward revision of guidance. However, the stock price experienced a decline, dropping around 7% despite the positive news. This unexpected reaction prompted a review of the earnings call to identify potential reasons for the stock's downturn. The speaker expresses continued bullishness on PayPal, emphasizing its undervaluation and strong performance.
Key Performance Indicators and Growth Catalysts [1:55]
PayPal has demonstrated improvement with mid-10% global brand checkout traffic on the new checkout experience, over 45% pay with Venmo TPV (Total Payment Volume) growth, and over 20% buy now pay later TPV growth. Venmo is experiencing growth across the board, with over 45% pay with Venmo TPV growth, over 40% Venmo debit card monthly active account growth, and over 20% Venmo revenue growth. The company added 2 million first-time PayPal and Venmo debit card users in the United States in Q2. Total Payment Volume (TPV) and revenue accelerated quarter over quarter, with transaction margin dollar growth of 7% year-over-year.
Free Cash Flow and TPV Mix [5:06]
The free cash flow for the quarter was lower than expected, at $656 million, due to shifts in working capital and timing differences related to European buy now pay later receivables. However, the free cash flow forecast for the full year remains unchanged, and significant increases are expected in Q3 and Q4. Venmo TPV growth accelerated to its highest rate in the past three years, and Braintree is showing signs of stabilizing and returning to growth.
Active Accounts, Revenue, and Payment Transactions [6:39]
PayPal's active accounts reached a record quarter with 438 million, up 2.1% year-over-year, indicating continued user growth. Overall revenue increased by 5.1%, with other value-added services (OAS) also increasing and expected to become a billion-dollar business per quarter. The number of payment transactions was down 5.4% year-over-year but up quarter over quarter. Transaction margin increased by 6.5% year-over-year and also increased quarter over quarter.
Take Rates, Margins, and Total Addressable Market [8:07]
Transaction take rates stabilized quarter over quarter at 1.7%, although they were still down year-over-year. A question was raised during the earnings call about how pay with crypto and PayPal World would affect the total addressable market, take rates, and margins. While the total addressable market is expected to increase, the impact on take rates and margins remains to be seen. PayPal has potential levers to pull, such as advertising and using its own stable coins, to mitigate any negative impact on margins.
Guidance and Share Purchases [9:53]
PayPal is raising its fiscal year 2025 transaction margin dollars and EPS guidance. Transaction margin dollar growth is now expected to be 5 to 6%, compared to the previous 4 to 5%, and non-GAAP earnings per share growth is now expected to be 11 to 14%, compared to the previous 6 to 10%. Free cash flow is still expected to be $6 to 7 billion, and share purchases are around $6 billion. The company bought back $1.5 billion worth of shares in the quarter, reducing the number of shares available on the market by 22 million.
Management's Excitement and Growth Expectations [11:06]
Management is most excited about PayPal World, a new initiative connecting major digital wallets, which they see as a game-changer for branded experiences. This platform has the potential to expand PayPal's reach beyond its 400 million customers to over two billion customers worldwide. They are also enthusiastic about the interoperability between PayPal and Venmo. PayPal's growth is expected to accelerate in line with their three-year outlook, driven by branded checkout upgrades, Venmo momentum, PSP inflection point, PayPal World, debit card adoption, and European rollout.
Long-Term Prediction and Conclusion [13:14]
The speaker predicts that PayPal's stock will return to $300, reaching its all-time highs by 2030, supported by fewer shares available in the public market, increased revenue, profits, and free cash flows. Despite potential opportunity costs in the meantime, the speaker believes the potential 4x return on investment makes PayPal a no-brainer investment. The speaker acknowledges the market's negative reaction to the earnings report but remains optimistic about PayPal's future.