PayPal Holdings, Inc. PYPL delivered decent fourth-quarter 2016 results, matching the Zacks Consensus Estimate on both counts. Earnings were 29 cents per share while revenues were $2.67 billion. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
For the last one year, the stock has outperformed the Zacks Internet - Software industry. It gained 29.79% compared with the industry’s gain of 21.34%.
The results were driven by continuous strong performance in global payments, both online and mobile. PayPal added 5.4 million new customers in the fourth quarter bringing the total to 197 million active customer accounts at the end of 2016. The company continues to do well with the Customer Champion strategy and enhanced value for customers and merchants.
In the quarter, partnership and mobile centrism continued to be PayPal’s top priorities. The company partnered with Discover Financial Services to link PayPal wallet with Discover cardholders and merchants and extended its partnership with cellular carriers.
The company is also exploring partnerships across multiple original equipment manufacturers (OEM), technology companies, mobile-carriers, retailers and financial institutions.
The company’s ongoing strategic partnerships with Visa and MasterCard offer great flexibility and choice to consumers. Partnerships with Facebook FB, Alibaba’s BABA AliExpress and Alphabet’s GOOGL Google, Intuit and other major retailers and financial institutions are also delivering positive results.
PayPal also added a number of brands such as auto. DE (Europe’s second-largest retailer), Barrel, Crate and Squarespace.
The quarter has witnessed PayPal’s accelerated push into mobile with Venomo continuing to bolster its stake in mobile payments. In 2016, the company’s mobile payment volume was $100 billion, up 55% and representing 28% of total payment volume (TPV)
In the fourth quarter, the strong holiday season backed online and mobile payment volume. PayPal processed over 2 billion in mobile payments between Thanksgiving and Cyber Monday.
Let’s delve deeper into the numbers.
Revenues
Net revenue of $2.98 billion was up 16.6% on a year-over-year basis (up 19% on an Fx-neutral basis). For the full year, net revenue of $10.84 billion was up 17% on a year-over-year basis (up 21% on an Fx-neutral basis).
Transaction revenues of $2.62 billion contributed 88% to total revenue and were up 13% sequentially and 16% on a year-over-year basis. Other value added services revenues of $0.37 billion contributed the rest and were up 4% sequentially and 24% year over year.
Geographically, the U.S. contributed 53% to total revenue, up 10% sequentially and 21% on a year-over-year basis. International revenues contributed 47% to total revenue and were up 14% sequentially and 17% year over year on an Fx-neutral basis.
In the quarter, Merchant Services contributed 84% to overall TPV and increased 30% year over year on an FX-neutral basis. Total TVP was $99 billion that grew 25% year over year on an Fx-neutral basis. The company processed 1.8 billion payment transactions (31 payment transactions per active account), up 23% year over year.
Margins
Adjusted operating expenses of $2.5 billion increased 17.6% from the prior-year quarter and 8.8% sequentially. Operating margin shrank 71 basis points (bps) year over year but was up 203 basis points sequentially to 16.5%.
Excluding the impact of intangibles, amortization and other items on a tax-adjusted basis, pro-forma net income of $415 million was up 7.67% year over year and 18.11% sequentially.
Including the special items, GAAP net income was $390 million (32 cents per share) compared with $367 million (30 cents per share) in the year-ago quarter.
