PayPal customers to use their smartphones to pay for goods in physical stores, not just Websites.
PayPal Holdings Chief Executive Officer Dan Schulman is getting investors to embrace his strategy of converting the online payments platform into a digital wallet, even if it requires deal-making that may diminish profit margins.
The company reported first-quarter results Wednesday that showed Schulman’s strategy is working and raised its annual forecast. Sales and profit topped analysts’ projections as PayPal added 6 million active customer accounts and increased the number of transactions per account by 12 per cent.
A network effect is taking hold, Schulman said Wednesday in an interview. As PayPal adds new users, it becomes more attractive to merchants, and as more retailers accept PayPal transactions, it drives greater engagement with consumers. The new account additions in the quarter represented PayPal’s biggest organic gain in three years, he said.
“More people are using PayPal more frequently,” he said.
Schulman wants PayPal customers to use their smartphones to pay for goods in physical stores, not just Websites. He has been cutting deals with credit card issuers, banks, and even Alphabet to increase the places where PayPal is accepted, which has spurred more people to create accounts and existing customers to use PayPal more often, according to the quarterly earnings report. In exchange for greater access to physical stores from credit card issuers, PayPal agreed to stop pushing customers to make payments from bank accounts that have lower fees.
The first-quarter results and revised outlook show PayPal is managing the transition to a greater variety of transactions without the profit erosion some investors feared, said James Cakmak, analyst at Monness Crespi Hardt.
“The deals with the credit card networks appear to provide less pressure than expected,” he said. “You’re seeing a skilled execution on the mission.”
Profit in the current quarter will be 41 cents to 43 cents on revenue of $3.05 billion to $3.1 billion, San Jose, California-based PayPal said in a statement. Analysts projected 42 cents on sales of $3.07 billion.
The company also raised its annual forecast for adjusted earnings per share of $1.74 to $1.79, on revenue of $12.52 billion to $12.72 billion. The previous projections were for profit of as much as $1.74 a share, on revenue of as much as $12.65 billion.
PayPal also announced a $5 billion stock buyback program authorised to begin when the company completes its existing repurchase program.
The shares rose as much as 7.4 per cent in extended trading after closing at $44.41 in New York. The stock has gained 13 per cent this year.
PayPal split from online marketplace EBay in 2015 to help it evolve from a payment button on Websites into a broader service that lets people find and pay merchants and send money to friends through smartphone apps. Schulman has prioritised growth over profitability hoping to fend off competing digital wallets from such companies as Apple.
The company last year inked agreements with payment networks Visa and Mastercard to increase PayPal’s presence in physical stores, where it hopes to lure shoppers with time-saving features such as apps that let them order ahead and skip lines. PayPal wants to attract shoppers and merchants with its one-touch feature, which lets shoppers quickly pay with mobile devices using saved account information.
Earlier this month, PayPal announced a deal with Alphabet’s Google that enables PayPal payments from Google’s digital wallet Android Pay through the tap of a phone at thousands of new retail locations.
PayPal reported first-quarter adjusted earnings of 44 cents per share on revenue of $2.98 billion. Analysts on average estimated profit of 41 cents on revenue of $2.94 billion. Total payment volume increased 23 per cent in the quarter to $99.3 billion.
Active customer accounts were 203 million in the first quarter, up from 197 million in the fourth quarter. Transactions per active account increased 12 per cent to 32 in the trailing 12 months.
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