PayPal’s Market Cap Reaches $269 Billion After Strategy Pivot

In its Q3 earnings file, FinTech firm PayPal reported a 13% increase in year-over-year revenue, falling short of Wall Street’s expectations. This was arguably a result of the company announcing a new deal with Amazon, which caused its stock price to pop in after-hours trading, with its market cap surpassing the $269 billion mark. 

Breakdown of PayPal’s Q3 Earnings

PayPal’s net revenue fell a little short of expectations, coming in at $6.18 billion compared to the expected $6.23 billion. However, the company reported adjusted diluted earnings per share of $1.11 for Q3, which beat the $1.07 per share seen in Q3 2020.

In the case of total payments volume, the company again fell short of expectations. PayPal announced a total payment volume of $310 billion in Q3, up by 24% on a YoY basis. However, analysts anticipated $313.7 billion in total payment volume. 

The major reason behind this was that eBay, PayPal’s former parent company, has shifted away from PayPal and is transitioning sellers onto its own payment system. PayPal reported that payments volume related to eBay marketplaces has plunged by 45%. 

Notably, the company resumed the process of onboarding new users, adding 13.3 million net new active accounts in the third quarter. Further, PayPal’s transaction revenue increased to $5.61 billion during Q3, up by 10% on a year-over-year basis, but down by 3% compared to Q2.

PayPal’s Venmo app, which enables US users to buy, sell, and check out with digital currencies, saw considerable growth. Venmo’s payment volume increased by 36% to $60 billion. Dan Schulman, president, and chief executive officer at PayPal, said in the earnings call:

“Venmo continues to achieve milestones and break records and is on track to deliver $900 million in revenue this year, with more than 80 million customers and $240 billion in run rate TPV, Venmo’s scale is on par with PayPal’s entire U.S. franchise in 2016.”

Nevertheless, partially to make up for the shift from eBay, PayPal has announced a new partnership with Amazon. Starting next year, US customers will have the option to pay with Venmo at checkout on Amazon.com and the Amazon Mobile Shopping app.

The deal is regarded as the reason behind the recent surge in PayPal stock prices. At the time of writing, PayPal shares are up by around 3.6%, trading at around $230 per share. 

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PayPal Adds More To Its Operations

With Apple, Google, and Amazon launching card payment services in recent years, the competition in the online payment space has become much more fierce than it was in the 2000s when PayPal came to prominence. Apple Pay, which was launched in late 2014, now accounts for a large share of transactions and is on pace to rival PayPal. Apple is expected to handle 10% of all global card transactions by 2025

In order to counter this, PayPal is looking to expand into other sectors. As reported by The Tokenist, Square’s CashApp, which supports cryptocurrencies, accounted for more than 70% of the firm’s $4.68 billion revenue in Q2 2021, bringing in a total of $3.33 billion. The company has also unveiled its intentions to create a crypto firm to bring DeFi to Bitcoin. 

Similarly, PayPal is capitalizing on its crypto offerings as a way to outweigh its competitors. The company initially dabbled in digital assets in October 2020, allowing US customers to trade select crypto assets. Shortly after, PayPal unrolled its crypto checkout, and during its Q2 earnings call, hinted at the possibility of bringing crypto to the UK.

In mid-August, the company revealed that it will allow its UK customers to buy, hold, and sell cryptocurrencies using the PayPal app. Now, during the earnings call, Schulman acknowledged that the new app, which supports crypto payments, has been successful.

“Initial results show that the new app has driven a 25 times lift in consumers exploring our deals and offer staff, a 15% increase in first-time users transacting with crypto, and it has also driven a 35% lift in our cash card enrollments. And the average revenue per account from digital wallet users is twice that of checkout-only users.” 

Meanwhile, PayPal is reportedly looking to enter the social media space by acquiring the lifestyle-focused platform Pinterest. With social media companies launching their payment solutions, it makes sense that PayPal has sought to add a social media platform to its arsenal/. 

Do you think PayPal’s market cap reflects its real value? Let us know in the comments below.