Key numbers to watch
Even though the 1Q tend to be seasonally the weaker, PYPL reported equally an impressive performance. Among the KPIs: Active Customer Accounts grew 15.6% vs. 1Q17 to 237mn (+5.9% vs. FIe), being with the exception of the 4Q17 the best quarter in 4 years in terms of growth. Payment Transactions amounted 2,214mn (+25.0% vs. 1Q17. Transactions Per Account also expanded up to 9.3 (+8.1% vs. 1Q16), while Total Payment Volume (TPV), probably the most scrutinized metric, amounted $132.3bn (+31.5% vs. 1Q17 and +0.5% vs. our estimate). Transaction Fee was lower, as expected, ending the quarter at 2.42% (vs. 2.61% in the 1Q17), though higher than the 2.20% we were banking on. We also note that the Transaction Expense remained steady at 0.96%. In fact this is the third quarter in a row with the same transaction expense, trending down compared to the previous quarters. On top of that, a strong set of indicators, with a top-line totalling $3,685mn (+23.9% vs. 1Q17 and +11.7% vs. FIe), an EBITDA of +12.0% and an EPS of +33.0% (+29.5% on a non- GAAP basis), partially driven by a lower than expected loan losses.
It upgrades top-line guidance for the FY18
PayPal upgrades its guidance for the FY18. Now it expects revenue to grow 16 - 18% at current spot rates (vs. previously given 15 - 17%) and 15 - 16% on an FX-neutral basis (vs. previous 14 - 16%) to a range of $15.2 - 15.4bn (vs. previous $15 - $15.2bn and $14.5bn we were forecasting). However, EPS is downgraded to a range of $1.73 - $1.76 (vs. previous $1.79 - $1.86 and 1.54 $/sh in our assumptions), though $2.31 - $2.34 on a non-GAAP basis (vs. previous $2.24 - $2.30). It did not announce a stock buyback, as some speculated could happen.
Conclusion
With a top-line mostly in line, earnings comes well above our expectations. Two points we would note: (i) far from decelerating, seems that PYPL keeps its historical growth pace, and (ii) despite transaction fee is lower and transaction expense is higher, something for us is honestly a poor indicator, PYPL is managing its operating leverage through G&A, customer support, product development and sales & marketing to slightly improve margins. How it is currently trading? ~4.5% FCF yield and 12m forward P/E of c. 31x on a non-GAAP basis. Multiples much in line with peers such as Visa or Mastercard, yet with a faster growth profile. All in all, this set of results should help investors to shrug off eBay worries. We recall late January sell-off related to former parent eBay's decision to shift its payment processing to Europe-based Adyen by 2020. We increased our TP to 87.70 $/sh in January. Ahead of these results, we stick with our HOLD.
