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PayPal’s Extraordinary Growth Continues

PayPal (NASDAQ: PYPL) might just be the best value in fintech and it is easy to see why. The digital-wallet provider’s ecosystem is growing by leaps and bounds and it is making a lot of money.

The most extraordinary growth is at Venmo, PayPal’s social media peer to peer payment (P2P) solution which is now a verb according to CU Insight. Some Millennials (persons between 17 and 37) are now telling friends that they will “Venmo you the money.”

Venmo has become so popular because it is extraordinarily fast, people can see if they get funds easily. That makes Venmo ideal for paying for things like meals or bar tabs which is why cash-strapped Millennials love it. They can hang out with their friends, without getting stiffed.

The Mystery of Venmo

It is also growing very fast; Venmo’s payment volume grew by 114% during the first quarter of 2017, Business Insider reported. That means Venmo processed $6.8 billion or $2.26 billion a month in that period.

Those numbers may not be so rosy because it is not clear if PayPal is making any money off the service, reported. Chief Financial Officer John Rainey declined to say how much Venmo costs to operate, but said he expects a steady increase in Venmo revenues.

Also unclear is the number of Venmo users, something that was not mentioned in PayPal’s earnings press release. Like Apple’s (NASDAQ: AAPL) Tim Cook, PayPal’s leadership is close-lipped about some Venmo details. Instead they like to harp on the growth in payment volume as Cook does about Apple Pay, and refuse to offer specifics.

One reason for that might be that Venmo and Apple Pay are actually losing money because of bank and credit card transaction fees. Financial institutions are quick to embrace such payment apps because of the fees they can charge on them.

The Opportunity from Venmo

Despite the mystery there are some terrific opportunities from P2P and Venmo. Large insurance companies are looking into the possibility of using them to pay claims, The Los Angeles Times reported.

Insurers like P2P because it provides complete anonymity and speeds up the process by limiting bureaucracy and reducing compliance headaches,  Lynn Cirrincione; the director of Treasury and Planning at Allstate (NYSE: ALL), told The LA Times. Another reason insurance companies like P2P is that it reduces liability, because no banking information is exchanged making hacking less of a threat.

Insurers are not the only companies interested in P2P 10 online merchants that cater to Millennials are taking Venmo payments, Venmo’s blog reported. Those companies are Parking Panda, Munchery, Gametime, Priv, Poshmark, Hop Market, Dollary, Urgentli, Boxed and Servicing those companies can give Venmo the expertise to offer P2P to mainstream retailers at some point.

Venmo is not the only P2P solution that PayPal is banking on. It is now possible to support Android Pay; the payment app from Alphabet (NASDAQ: GOOG) with PayPal. That’s a pretty shrewd move because more mobile payment app users seem to be using Android Pay than Apple Pay.

Around 18% of users reported using Android Pay, while only 11% used Apple Pay, according to Statista data. That’s not surprising since Android the world’s most popular phone operating system. If this continues PayPal might be poised for explosive growth in coming years.

PayPal sees a Bright Future for P2P

PayPal sees a bright future for P2P and is betting big on the technology. The company acquired the Canadian cloud-based payment processor TIO Networks for $233 million in February, a press release indicates.

TIO specializes in receivables management which would make it perfect it for handling Venmo payments.  TIO serviced 14 million consumer bill pay accounts and processed $7 billion in payments in 2016. One of TIO’s specialties is processing utility and telephone bills which might enable PayPal to start offering Venmo bill pay to Millennials.

PayPal would be the perfect venue for growing P2P because it has 203 million active accounts and 16 million action merchant accounts, a press release indicates. The company processed 1.7 billion transactions during the first quarter of 2017, a 23% increase over the year before.

That gave PayPal a $99 billion total payment volume for 2017, which means PayPal now rivals many of the large banks in size and scope. PayPal is now a major financial institution as well as a Fintech company. This will have major repercussions with regulators and banks at some point.

Is PayPal Making Money?

All that is fine and good but value investors will ask the all-important question: “is PayPal making money?” The answer provided by ycharts data is “yes with a capital y.”

Some of the highlights of PayPal’s earnings for First Quarter 2017 include:

  • Revenues of $11.27 billion up from $10.48 billion on December 31, 2016.


  • A net income of $1.42 billion a slight increase from $1.401 billion at the end of fourth quarter 2016.


  • A profit margin of 12.91%.


  • A diluted earnings per share number of 1.18.

  • A free cash flow $603 million, that’s a significant drop from $771 million in December 2016. This might indicate that Venmo costs are eating into PayPal’s cash flow.


  • Assets of $33.49 billion another slight increase over the $3.10 billion PayPal reported three months earlier.

  • $4.055 billion in cash and short-term investments. That was down from $4.97 billion on New Year’s Eve 2016. My guess is the drop includes the money spent to acquire TIO Networks and an ongoing stock buyback.


  • $1.871 billion cash from financing. This too was down from $2.038 billion at the end of 2016.


  • $3.171 billion in cash from operations. This was a slight increase over $3.148 billion at the end of 2016.

These numbers show us that PayPal has a little more float, and less cash. They indicate a value investment because revenue and income are growing, and management is spending cash to enhance the company’s position.

Is PayPal a Good Investment?

Once again I shall advance the contention that PayPal is a good investment because it makes money. More importantly shareholders were rewarded with a return on equity of 10.01% on March 31, 2017.

There is no PayPal dividend but the company has plans to spend up to $5 million worth of stock, the earnings release indicates. There is also $488 million left to spend to spend in an earlier stock repurchase program from December 2016.

If you are looking for a value play in Fintech check out PayPal you will not be disappointed it is a great company with a good stock.

Disclosure: your friendly neighborhood blogger has been a loyal PayPal customer for many years and is a former PayPal shareholder.