PayPal"s 3rd Quarter Reveals Healthy Vital Statistics
- By Sangara Narayanan
PayPal ( PYPL) has had a nice run up this year as the stock price nearly doubled in the last 12 months. One major factor that propelled the rise is PayPal"s consistent revenue growth during the period. Should investors buy PayPal, which is trading near its 52-week high, or should they wait for a pull back to invest? Let"s a take a closer look at PayPal"s recent performance to analyze the investment case.
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The intrinsic value of PYPL
A pullback seems a remote possibility at this point in time
PayPal"s revenue grew from $7.86 billion in the first nine months of 2016 to $9.35 billion this year, representing 18.9% growth. The strong growth performance has allowed the company to raise its 2017 guidance in each of the three quarters, and the company now expects revenues to grow 20-21% on a currency-neutral basis. The company has either beaten or matched Wall Street expectations for the last eight quarters in a row, which makes the odds of underperformance really low in the short term.
Payment volume continues to grow
To know the health of any payment processor, all you need to do is look at its payment volume growth. Payment volume grew 29% during the third quarter to hit $114 billion. The 29% growth during the third quarter of 2017 was 1% more than what the company achieved in the third quarter of 2016. So instead of slowing down due to increasing volumes, PayPal continues to increase its payment volume at a rapid rate.
As customer accounts increase, engagement is also on the rise
One reason for the steady growth despite increasing volumes is that the number of PayPal"s active customer accounts keeps increasing at a steady rate, while engagement from existing customers is also on the rise. PayPal added 26 million active customer accounts in the last year, compared to 19 million in the period before.
Customer engagement, calculated using the number of transactions per active account, has been on a steady increase, moving from 29.4 in the second quarter 2016 to 32.8 in third quarter 2017.
The 9% increase in transactions, coupled with 14% increase in active customer accounts, is the reason for the above-par growth rate PayPal was able to report during the third quarter. As long as these two metrics stay on the growth path, PayPal will be able to keep growing its revenue at double-digit rates.
PayPal is running away with the crucial Mobile Payments segment
The increasing penetration of smartphones around the world has accelerated mobile payment transactions. U.S. Proximity Mobile Payments are expected to increase fivefold, from $62 billion in 2017 to $314 billion in 2020.
PayPal has been witnessing strong volume growth in mobile payments. The company reported that nearly 35% of total payment volume came through a mobile device as mobile payment volume increased by 54% compared to last year.
PayPal reported similar growth numbers last year as well, with mobile payment volume increasing 56% during the third quarter of 2016. PayPal"s mobile payment volume was just $26 billion during the third quarter of 2016, which increased to $40 billion during the third quarter of this year. And there is good chance it may soar to $60 billion by this time next year.
Conclusion
With most of the parameters looking good, the odds of PayPal having a bad quarter look extremely slim in the short term. The stock price may continue to keep increasing as a result, making it difficult for investors to buy into PayPal. Instead of waiting for a pullback, investors can buy small amounts of PayPal stock over a longer period of time.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
This article first appeared on GuruFocus.
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The intrinsic value of PYPL
