PayPal surges 8% after strongest earnings results in at least a year, seeing growth in Venmo

PayPal had a break-out quarter, sending its stock surging after reporting earnings.

The payments company beat Wall Street’s estimates across the board for the third-quarter results Wednesday evening. Investors applauded the outperformance, sending PayPal shares up more than 8% in pre-market trading Thursday.

The San Jose, California-based company reported 61 cents of adjusted earnings per share for the quarter, vs. 52 cents expected by analysts polled by Refinitiv. Revenues also outperformed, with $4.38 billion in the quarter vs. the $4.35 billion expected. Its forward guidance for next year was also in line with expectations.

“PayPal’s 3Q19 results were the strongest we’ve seen in at least a year,” Lisa Ellis, research analyst at Moffett Nathanson, said in a note to clients Thursday. “All in all, a very clean, strong, quarter.”

Total payment volume — a closely watched metric for PayPal and its peers — came in at $178.7 billion, also above expectations. That growth accelerated 25%, better than the past two quarters and all of 2018, according to MoffettNathanson.

Its mobile payment app Venmo was a key bright spot. Despite not yet breaking even for its parent company, the app saw 64% growth in payment volume year over year. Venmo also processed more than $27 billion in the quarter. On a call with analysts, CEO Dan Shulman called the app “an incredibly powerful platform for engaging consumers” and that he was “pleased” with its monetization progress.

“We see a lot of good runway in front of Venmo,” Shulman said. PayPal ended the third quarter with an annual revenue run rate just shy of a $400 million, compared to $200 million last quarter.

William Blair analyst Robert Napoli told clients in a note Thursday morning that “Venmo losses are moderating, which is supporting margin expansion.” 

PayPal also announced good news in China. After years in the works, PayPal got approval from the People’s Bank of China to acquire a 70% stake in Shanghai-based GoPay. The start-up has digital payment licenses in China. That deal is expected to close in December, and will make PayPal the first licensed foreign-payment platform to operate there.

“This is a very significant development for us and has the potential to dramatically expand our total addressable market and our long-term growth prospects,” Shulman said on the call. 

Still, some investors had been worried about an upcoming expiration of the PayPal-eBay exclusive operating agreement. The roll-off from eBay, which used to own PayPal, is seen as a headwind for earnings into the next two years.

But MoffettNathanson’s Ellis said by dissolving that exclusive partnership, PayPal can ramp up at least four new high-growth platforms: Paymentus, Facebook, Mercado Libre, and Uber.

“PayPal will emerge from the eBay transition in a stronger competitive position and healthier financial position,” Ellis said. “The primary uncertainty in the eBay roll-off is its exact timing (how much in 2020, 2021, or beyond) – its overall magnitude is well-defined.”