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PayPal’s record year helped by rapid rollout of new products

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PayPal could have kept to its core competencies and still had a massively successful 2020 due to the surge in digital payments that came out of the coronavirus pandemic. But it also jumped onto lucrative new trends.

Key to PayPal’s successful year were its support for buying and selling cryptocurrencies; and its entry into the buy now/pay later market.

“I’m pleased to report that PayPal just completed the strongest year in our history, Achieving record growth in net new active customers, volume, revenue, operating income, earnings and free cash flow,” said Dan Schulman, president and CEO of PayPal in the company’s Wednesday earnings call. “Consumers and businesses of all sizes have embraced the new digital era, erasing the distinction between online and offline. A digital first world is no longer our future, it is our current reality.”

Probably the biggest surprise of the quarter was the performance of the new “Pay in 4” installment payment product. Schulman noted that in the first full quarter “out of the gate,” it delivered $750 million in total payment volume. Merchants spotlighted the feature, with 10,000 stores placing it at the top of the sales funnel instead of at checkout. Over three million customers used the buy now/pay later product in the quarter and PayPal experienced a 40% repeat use rate.

With Pay in 4, “we saw tremendous and growing demand throughout the quarter and witnessed the fastest start to any product we have ever launched,” Schulman said. “Millions of consumers transacted at hundreds of thousands of merchants in Q4 alone. Since I’ve been here I’ve never seen a product launch with that kind of scale so quickly.”

PayPal announced the ability to buy, hold and sell cryptocurrencies in October. Customers will be able to use their crypto balance as a funding source at PayPal’s 29 million merchants in the first quarter of 2021.

“We released more products and services in 2020 than in any previous year,” said Schulman. “And we will step up that pace in 2021. Merchants and consumers are turning to PayPal as we accelerate into the digital age. Our opportunities over the next five years have never been greater.”

In the fourth quarter, PayPal added 16 million net new accounts (including merchant accounts), up 72% from the same quarter one year earlier. Revenues reached $6.12 billion and total payment volume reached $277 billion, up 23% and 39% year-over-year, respectively.

For 2020, PayPal added 72.7 million net new accounts, up 95% from 2019, ending the year with a total of 377 million active accounts (including 29 million merchant accounts), up by 24% from 2019. PayPal revenue in 2020 rose 22%, to $21.5 billion, and payment volume rose 31%, to $936 billion.

PayPal provided guidance that 2021 would be a very strong year. It expects to add an incremental 50 million active accounts, with payment volume forecast to grow in the high 20% range and revenue forecast to reach $25.5 billion, representing a 19% growth rate.

Earnings per share came in at $1.08 per share, up 29% from the same quarter a year earlier and beating analyst consensus estimates from Zacks Investment Research of $1.00 per share. The EPS for the full year was $3.88, up 31% from the same quarter last year and also beating the $3.80 analyst consensus estimate.

Schulman noted that 2020 was a year of breaking records, giving the examples that in the second quarter the company broke the $5 billion revenue barrier, and in the fourth quarter it had crested the $6 billion revenue benchmark.

PayPal’s Venmo unit also delivered strong performance, with fourth quarter payment volume of $47 billion, up 60% year-over-year. Venmo customer accounts were up 32% in 2020, ending just shy of 70 million active accounts. PayPal expects Venmo revenue to reach $900 million in 2021.

In early January, eligible customers were able to cash their stimulus checks within the Venmo app for the first time.

This month, the Venmo credit card will be made available to 100% of the unit’s customer base; and in the coming months PayPal will launch the ability to buy, sell and hold crypto through the Venmo app. The revamped “Pay with Venmo” will be launched in the second quarter of 2021.

Schulman noted that in 2020, the company’s mobile apps underwent a significant change, adding QR Code payments for in-store transactions. By the end of 2020, PayPal and Venmo “Pay with QR codes” were accepted at more than 600,000 locations. Across all in-store efforts, including “Tap and Pay,” QR codes and cards the company processed over $20 billion in payment volume with almost 10 million PayPal customers.



 

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