We're now well into earnings season, and fintech heavyweights Visa (NYSE: V) and PayPal (NASDAQ: PYPL) just reported their first-quarter results. In this Industry Focus: Financials clip, host Jason Moser and Motley Fool contributor Matt Frankel, CFP discuss the numbers and the growth potential of these companies going forward.
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This video was recorded on April 29, 2019.
Jason Moser: We had some earnings that hit late last week we wanted to get to here. We're going to start with Visa. Matt, you took a look at Visa's quarter. What stood out to you?
Matt Frankel: Well, Visa's a huge company that's still growing pretty fast. I mean, revenue was up 8% year over year. Earnings were up 17%. When earnings are growing faster than revenue, that tells you that a company's generally doing a really good job with expenses. Visa spent less on marketing, less on professional services than it did last year, despite the revenue increase, which is why you saw earnings really jump. Visa did so well in the first quarter that they actually increased their guidance for the entire year. An earnings beat, a stock could go up or down depending on the context of the report. Same with revenue beat. But when a company increases its guidance for the year, it's generally a really good surprise for investors. That's one of the only universal things that you're generally going to see the stock reacting positively to. Visa's at an all-time high right now. It looked pretty good. They're expecting double-digit growth this year. They said high to mid-double-digits for earnings per share, double-digit revenue growth they're expecting now. Payment volume keeps going up. Payment volume was up 8% year over year. The number of transactions Visa processed was up 9% year over year. These are some impressive numbers, considering the size of Visa and the growth they've had over the past five to 10 years. If you think Visa's already gotten as big as it can get, this report tells you to think again.
Moser: I think that's a good point. We talk about it all the time, this move away from cash and toward mobile payments, contactless payments, whatever it may be. Visa is a big company, $356 billion market cap. But we're watching some of these big tech companies today that are touching on $1 trillion market caps. Obviously, those tech companies are in very big market opportunities as well. But when we talk about how money flows around the world, that's clearly a huge market opportunity. We're talking about basically the entire world. We're talking about these networks that have this money going all sorts of different directions. That's something that is only going want to continue to grow. I don't think it's unreasonable at all to see Visa, at some point in our lifetime, knocking on that $1 trillion market cap. Am I way off base here? What do you think?
Frankel: No. Actually, you mentioned that this is a trend all around the world. It's worth mentioning that Visa's international revenue actually slowed, the growth slowed down this quarter. Visa had such a great quarter, despite bad international revenue. International remains a huge opportunity for Visa. It's a little more than I think half of their total payment volume. But that's just a small drop in the bucket compared to their potential. Visa's barely in China yet, for example. A lot of the most populated places in the world, Visa's barely scratched the surface. There's a ton of opportunity here. I would not at all be surprised in the next decade or so even if Visa starts knocking on that $1 trillion market cap.
Moser: Yeah, that's not out of the realm of possibility, for sure. Well, sticking on the payments theme, we'll take a look at PayPal here really quick. There's not a whole heck of a lot to nitpick. They turned in strong numbers. Revenue grew 12% for the quarter. They did a very good job of bringing that down to the bottom line. GAAP earnings up 34%. Non-GAAP earnings were up 37%. Any which way you look at it, PayPal continues to be a network that people are utilizing. I think when you look at some of these numbers, it is really impressive. Total payment volume of $161 billion for the quarter, was up 25%. Total transactions of 2.8 billion, was up 28% from a year ago. They added 9.3 million new accounts for the quarter, that was up 15%. They now have 277 million total active accounts, which is really impressive, and again, going back to that same theme with Visa, it's still such a huge market opportunity left out there.
I think it was really interesting. They noted they have 40 million active users now with Venmo. We know they're working on monetizing Venmo. I think they're not going to rush to do that. I think they're taking their time and making sure they do that the right way. That's encouraging as well. They talked, about last quarter, they were reporting that Venmo was operating on a $200 million revenue run rate. That now stands at $300 million. More people sending more money through those networks. It really just gets you back to that idea that, PayPal to me is one of those companies that every Foolish investor really should have in their portfolio, because it has so many of those great qualities that we look for, from strong management to massive market opportunities to constantly innovating. It's one you can own for many, many years to come. I would put Visa in that same category. I think you probably would, too.
Frankel: Yeah. PayPal actually makes Visa's growth rate look kind of slow. They're doing that well. One thing to point out with that, everyone who's listened to the show before knows that I think the world of person-to-person payments is a long-term opportunity. Not only do companies like PayPal and Square, like I talk about all the time, have the same international growth opportunity Visa does; they have a big domestic opportunity as well. While the majority of big transactions and merchants these days are done with cards, the majority of person-to-person transactions and smaller transactions are still done in cash. Although things like Venmo have gotten very popular, especially among the younger generations, it's still not the majority of its addressable market. I've seen statistics where, most transactions under, say, $20 happen in cash. So this is a big market. If I have to split the check with my friends at dinner, I still use cash, I'll admit. I'm an old school guy in that way. But eventually, that might not be the case. Eventually, my friends might insist that I pay them electronically, because they don't want cash.
But the point is, this is a huge addressable opportunity domestically, in addition to internationally, which is why you're seeing such a breathtaking growth rate for these companies that have person-to-person payment platforms.
Moser: Yeah. I think you're right. I know we always talk about investing for the long term, thinking in years and sometimes decades. The older you get, I think sometimes it can be a little bit difficult, because you wonder how many decades perhaps you have left. [laughs] But one of the things I always like to do is, I look at my daughters, and they are 14 and going on 13. And I basically try to envision what the world looks like when they're 30. 15 years down the line or whatever, they're around 30 years old, what's the world going to look like? I just feel like these are companies that are still going to be very relevant in what they're doing, and probably a bigger part of their generations' lives then even today. I think that really bodes well for investors.
It's not to say you hold these things blindly. Obviously, you have to keep tabs on them and make sure management is doing the right thing. But, yeah, we're looking for big market opportunities, and it's hard to disrupt the fact that you have to pay for stuff. I mean, it's just going to be a matter of how you do it. I think that companies like Visa and PayPal and MasterCard and Square and Stripe -- and Stripe works with Shopify, and Shopify is getting into some hardware stuff, I saw -- those are all businesses that I think are really worth a look for investors. Even today, when we feel like valuations are a little bit out there. I think that's when you really we have to focus on getting those high-quality businesses, and those are some of them, for sure.
Jason Moser owns shares of Mastercard, PayPal Holdings, Square, and Visa. Matthew Frankel, CFP owns shares of Square. The Motley Fool owns shares of and recommends Mastercard, PayPal Holdings, Shopify, Square, and Visa. The Motley Fool has a disclosure policy.