While PayPal may be the granddaddy of online payment services, the company showed it can still keep up with all the hot new startups last quarter. Reporting accelerating growth in both sales and new users for the third quarter, PayPal’s stock price shot up 5% on Friday to an all-time high of almost $72. The shares have gained 80% so far this year.
On Thursday night, the company reported that revenue increased 21% to $3.2 billion in the third quarter. That was faster than analysts expected–they forecast a 19% jump on average–and represented an acceleration from the 18% growth rate reported in the third quarter of 2016. Adjusted earnings per share of 46 cents were up 31% from last year and beat the average analyst forecast of 43 cents. PayPal said it added 8.2 million new active customer accounts, double the number added in the third quarter last year.
Also, for the third consecutive quarter, PayPal (PYPL) raised its own financial forecast for the year. For the full year, PayPal said it could bring in as much as $12.98 billion in revenue and $1.88 per share in adjusted EPS.
Analysts were impressed that the company, once written off as an also-ran in a maturing market, was finding new ways to tap into the strong growth of mobile e-commerce. PayPal said it added a record number of new users both to its traditional online payments offering as well as its more millennial and mobile-focused Venmo service.
The company, “not only showed no signs that its platform growth is slowing, it demonstrated that it is actually increasing its rate of growth as the network effects that management has repeatedly cited during the past couple of years have apparently been triggered in earnest,” Mark Palmer, an analyst at BTIG Research, noted on Friday. “Yet many of its initiatives–the monetization of social peer-to-peer payment app Venmo, the expansion of instant-checkout feature One Touch, customer choice–are still in the very early innings.”
Morgan Stanley’s James Faucette was similarly wowed. “What makes us most bullish is (PayPal) is able to deliver this consistent performance without upside from its myriad initiatives,” Faucette wrote on Friday. “Upside beyond that could take that earnings growth a step further.”
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As the analysts noted, PayPal just this week unveiled a feature allowing Venmo users to pay for mobile e-commerce purchases with the app at any of the 2 million retailers that already accept the compamy’s older PayPal network. That will help drive further revenue growth somewhat and increase profit margins next year.
“We do have some modest assumptions about monetizing Venmo going into next year,” CFO John Rainey told analysts on a call after the earnings announcement. “And so given in the guidance that we gave approximately 20% revenue growth and 20% earnings growth that does include some assumptions about Venmo.”
The company also plans to expand off its deals with major credit card networks Visa (V), Mastercard (MA), and Discover (DFS) to allow PayPal users to pay for real world purchases more easily using their phones. CEO Dan Schulman said the company will use industry standard technology to enable mobile payments similar to the way Apple Pay and Android Pay work now. PayPal will “add that capability into our app which we expect to do next year to start to move into the offline marketplace,” Schulman told the analysts.
