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PayPal earnings: Cashing out

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  • Q1 revenue: $4.62 billion (12% YoY vs. $4.74 billion expected)
  • Q1 earnings: $400 million (-23% YoY, below expectations)
  • Q2 guidance: It's expecting revenue to grow by about 15% and EPS to decline by 28% to 34%

The big number: PayPal's biggest metric for success is the number of active accounts it has across all its services. The number was up by more than 20 million to 325 million in the quarter, although that was partially because it acquired the rewards company Honey during the quarter, and it's including its users in its number. Even still, its own user base grew by 10 million outside of the acquisition, a first-quarter record for the company.

People are talking: The pandemic is global, but so is PayPal's user base. "The diversity of our platform and customer base across products and geographies positions us well during this unprecedented time," CFO John Rainey said in a statement. "Our free cash flow and strong balance sheet allow us to continue investing to serve the needs of our customers."

Opportunities: Even into April, PayPal said that it was still acquiring new users, adding an additional 7.4 million accounts in the month alone. Payment volumes and revenue were also up over 20% for the month (as compared to the period last year), presumably as more people sign up to pay for goods and services while stuck at home. Everyone's favorite emoji-friendly payments system, Venmo, processed more than $31 billion in payments in the first quarter, growing 48% over last year. If PayPal can keep that momentum going, it'll likely be in a good position moving forward.

"It is clear that PayPal's products are more important and relevant than ever before," President and CEO Dan Schulma said in a statement. "The strength of our customer value proposition combined with the acceleration of digital payments adoption significantly accelerated in April, with increased demand and engagement."

Threats: Not every part of PayPal's business is growing. The company said that PayPal and Venmo revenue were "partially offset by lower revenue from travel and events verticals and credit," presumably because no one's going anywhere. The company's operating margin fell from 12.5% in the first quarter of 2019 to 8.6% this quarter.

The power struggle: Growing while still generating income is an issue PayPal will have to contend with in the coming months. It's racking up new users, but it's still expecting earnings to fall for the second quarter of the year.

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