The Future Looks Bright For PayPal

Wednesday was a calm day for Wall Street, but a sensational one for PayPal PYPL after it reported strong results and lit the market during after-hours trading. PayPal's profit tripled, pushing earnings way past estimates and stock 3-4% up.

PayPal's sensational performance

In the fourth quarter, PayPal added 16 million new active accounts which is a 72% increase from last year's figure, bringing the total for 2020 to 72.7 million. That pushed revenue for the quarter up 23% and adjusted earnings by 29%. Total payment volume for the year soared by more than 30% despite travel-related activity having nearly evaporated during the pandemic. PayPal reported its strongest-ever quarterly growth in payment volume during its fourth quarter with $277 billions as the company enjoyed its strongest year in its history.

Q4 figures

Accounting for the acquisition of Honey Science, PayPal earnings climbed 29% to $1.08 an adjusted share on revenue that rose 23% to $6.12 billion. Both exceeded analyst estimates of $1 a share on revenue of $6.09 billion, as well as prior year's quarter earnings of 86 cents a share on sales of $4.96 billion. For the fourth quarter, it earned profit of $1.57 billion, up from $507 million a year earlier. Operating cash flow rose 46% to $1.35 billion, and free cash flow jumped 50% to $1.12 billion.

2021 outlook

The future looks bright for PayPal. Although its, or more precisely Venmo's, rivalry with Square SQ is expected to intensify this year, it signed a ton of new merchants in 2020, including Footlocker FL, Levi Strauss & Co LEVI, Macy's M and Uniqlo. It will aim to enhance its pay-later alternatives in an answer to companies like Affirm Holdings AFRM. It finally boarded the crypto train last November and plans to push to have digital currency as a direct funding source across its base of 29 million merchants. As hopefully brighter days are ahead, and the global economy recovers, PayPal is expected to keep profiting from its recovery.

Cryptocurrency

Some had expected cryptocurrency to play a bigger role in PayPal's success, but if anything, the strength of its core business is even better news as there will be time to develop on this front as well. The company hopes to add another 50 million accounts in 2021 and keep producing solid growth rates as it will enhance its digital currency offerings.

Digital is now the reality

PayPal had its best year in its history and this milestone coincided with unprecedented e-commerce numbers as the pandemic kept people inside and closed brick and mortar stores, especially during the holiday season. Both CEO John Schulman and CFO John Rainey emphasized that a "digital-first world" has become our reality.

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