Wall Street should get off PayPal’s back when it comes to surging peer-to-peer payments platform Venmo.
Not only is PayPal (PYPL) showing it could make money off Venmo (a constant Wall Street gripe), but it has no plans to spin off the asset anytime soon into its own public company (another thing many on Wall Street want to see).
“Part of the magic of Venmo and PayPal is the platform itself, it’s integrated – it creates a network effect,” PayPal chief financial officer John Rainey told Yahoo Finance when asked if it would make sense to split off Venmo from PayPal. “There are a lot of synergies from running both on the same platform.”
PayPal got its hands on Venmo in 2013 when it purchased digital payments player Braintree for $800 million. Since then, Venmo has found a very loyal base among teens and millennials. PayPal expanded Venmo into its own debit card earlier this year. It’s now integrated with other mobile-centric businesses like Uber, Uber Eats and Grubhub.
Meanwhile, the company has pivoted to making money off what has largely been a free-to-use platform.
On Nov. 7, Venmo will begin charging users 1% on cash transfers to bank accounts. Previously, it was a 25-cent fee.
Venmo did its part to contribute to PayPal’s better-than-expected third-quarter results, announced Thursday. Rainey says about 24% of Venmo’s users (PayPal doesn’t disclose Venmo user numbers) participated in a “monetizable transaction” in the third quarter vs. 17% in the second quarter. In non-tech geek speak, PayPal made more money off Venmo users in the third quarter.
Jefferies analyst John Hecht said in a note to clients the monetizable transaction data suggests PayPal is earning money from Venmo at a quicker pace than many on Wall Street think.
Total payment volume on the platform surged 78% year-over-year to $16.7 billion. The total number of users for Venmo hit a record for the third straight quarter, too.
Overall, PayPal reported third-quarter earnings that beat Wall Street estimates by three cents a share. For 2019, PayPal sees 17% sales growth leading to earnings growth of up to 21%.
PayPal is proving that it makes financial sense to operate its namesake business and Venmo under one roof, for now. “There are a lot of synergies from running both on the same platform,” Rainey says.
Besides, if Venmo can continue to demonstrate it can make money, it will be worth way more in the public markets later. So, why the rush to sell?
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi