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Amid a crisis, PayPal has best its quarter since its IPO

As the coronavirus pandemic wreaked havoc on the economy, there were few bright spots. PayPal is one of the brightest.

The former eBay subsidiary’s second-quarter performance breaks multiple records — including new users, revenue and payment volume — as it welcomed many newcomers to the digital economy.

PayPal recorded its first-ever quarter reaching $5.26 billion in revenue, up 22% compared to the same quarter in 2019. Total payment volume (TPV) reached a record $222 billion, up 30% year-over-year, and exceeded its fourth quarter volume, which is traditionally its highest.

Keys to the company’s strong growth for the quarter were the influx of new users, new merchants, consumers who had never used e-commerce before and the general market shift of physical sales to a digital environment.

“I’m pleased to say that PayPal just had its strongest quarter since becoming an independent public company five years ago,” said Dan Schulman, president and CEO of PayPal, in the Wednesday earnings call. “Simply put, our business has never been more relevant and important than it is today. In the midst of the COVID pandemic, we have seen substantial macro changes that we believe will have a lasting and profoundly positive impact on our business. The world has accelerated from physical to digital across multiple industries, including retail.”

PayPal reported that merchants’ embrace of a digital-first strategy has been critical to fueling a rapid rise in digital payments.

The strength PayPal experienced in its business in April continued to gain momentum throughout the quarter. Transaction volumes grew by 26%, to 3.7 billion, compared to the same quarter one year earlier. Schulman noted that its most recent quarter consistently rivaled the transaction volumes that PayPal normally experiences during the five-day period between Thanksgiving and Cyber Monday.

While the TPV reached a record for the quarter, Schulman added that the payment volume for June was the single-highest month since PayPal’s separation from eBay in 2015.

In addition, “we added a record 21.3 million [net] new [active] customers in the quarter, increasing nearly 140% year-over-year,” noted Schulman. “To put this into perspective, this quarter’s net new actives were greater than our total net new actives in 2016. Nearly 1.7 million merchants signed up for PayPal in Q2, and Honey net new actives were three times that of Q1.”

PayPal paid $4 billion in 2019 for Honey, a deal-hunting tool that Schulman said places PayPal much earlier in the shopping process than its typical placement on the checkout page.

Dan Schulman, president and CEO of PayPal

“This is our time and we intend to seize the moment,” said Dan Schulman, president and CEO of PayPal.

Bloomberg News

PayPal ended the second quarter with over 346 million active accounts and more than 26 million merchants. Given the company’s momentum, PayPal expects to achieve a total of 70 million net new actives for 2020. Since PayPal has already achieved 41.5 million net new actives in the first half of 2020, the balance forecast is for an incremental 28.5 net new accounts, or 14.25 million for each of the next two quarters —below the experience of the first two quarters of 2020, but above the 9 to 10 million quarterly pace of 2019.

Company executives commented that they experienced strong engagement from new users flocking to its platform, with particular emphasis on a group called “silver techs” which were defined as consumers who had never used e-commerce before. While age was not mentioned in the description, it was inferred that the few remaining e-commerce holdouts are chiefly among older consumers.

PayPal’s Venmo platform processed approximately $37 billion in TPV for the second quarter, up 52% on a year-on-year basis. PayPal reported that Venmo achieved record net new active account users for the quarter. The active basis of Venmo users now exceeds 60 million.

Year-over-year revenue growth rates for Venmo rates during the first three weeks of July were up 60%. Executives declined to provide other revenue figures for Venmo. However, they did highlight that the Venmo credit card will be available by the end of the year. Additionally, Xoom, PayPal’s cross-border remittance platform, saw 600% growth in net new actives compared to the first quarter of 2020.

In its first quarter update, PayPal announced Venmo had processed $31 billion in TPV. This gives the Venmo franchise a $68 billion TPV for the first six months of 2020. In comparison, its bank network P2P competitor Zelle reported significant growth for the first six months of 2020 as it routed $133 billion in TPV, up more than 60% over the $83 billion sent during the first two quarters of 2019.

Looking forward, the company noted that it is pushing to accelerate contactless payments for in-store transactions, and one key enabler is its QR code functionality, which is available across 28 countries for small and micro merchants. PayPal is working with leading retailers in the U.S. and Europe to roll out its QR solution this quarter with expansion plans in 2020. For example, PayPal is working with CVS Pharmacy to enable PayPal and Venmo QR codes for payment at CVS cash registers, and expects a national rollout to all 8,200 standalone CVS stores by year-end.

PayPal is significantly investing to accelerate its investment in all aspects of omnichannel commerce from point of sale to in-store pickup, order ahead, pay at table, and home delivery.

“This is our time and we intend to seize the moment,” said Schulman. “Our products and services have never been more important and we are ready and well-positioned to capture the opportunities that lie ahead of us.”

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