PayPal: Growth on Sale – WSJ


PYPL -3.26%

shares have sold off sharply in the recent market correction, bringing its valuation down to more reasonable levels. Meanwhile, the payment company’s growth story just got more compelling.

PayPal reported solid quarterly earnings Thursday. Revenue rose 14% from a year earlier, slowing from 23% growth the prior quarter, but this was largely due to the sale of a loan portfolio. Excluding this, revenue growth was a robust 21%, in line with the pace of previous quarters. Earnings per share rose 17%, beating analyst estimates, and the company raised guidance for the rest of the year.

At the moment, this growth is mainly driven by increasing use of PayPal’s convenient checkout button to pay for online purchases. PayPal doesn’t break out how much of its revenue comes from this channel, but MoffettNathanson estimates it accounted for 86% last year. These analysts aren’t worried about excessive reliance, though, figuring that checkout-button volumes can keep growing by 20% a year for the next three years.

On Thursday, PayPal also provided fresh disclosures showing that it is gaining traction on other revenue sources important to its future. Braintree, its payments-acceptance platform used by merchants like


and Stitch Fix, processed 1.64 billion transactions in the third quarter, up 33% from a year earlier.

Most crucially, the company is making progress figuring out how to make money on Venmo, its payment app that is popular with young users. Chief Executive Dan Shulman said 24% of Venmo users have now used the app in a way that generated money for the company, a so-called monetizable action. That is up from 17% in the second quarter. This includes using Venmo to pay for goods and services from a merchant, “instant transfers” of Venmo balances to users’ bank accounts and uses of the new Venmo-branded debit card.

The company gave no details on how much revenue it is earning from either Braintree or Venmo—disclosures that investors would appreciate. But the figures it did cite are enough to demonstrate that PayPal isn’t just a checkout-button story.

Before reporting Thursday, PayPal’s stock was down 17% from its September high, wringing some excess optimism out of the valuation. It now trades at 28 times forward earnings, in line with its average multiple since becoming an independent company and down sharply from 37 times at the start of this year.

The recent market selloff has hit many payment stocks—a particularly highflying corner of the market. But PayPal is no Square, which still fetches 105 times forward earnings. This pullback creates a rare opportunity to snap up an exciting growth stock at what is now a reasonable price.

Write to Aaron Back at

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