Market Overview

PayPal Reports Second Quarter 2018 Results

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GAAP EPS of $0.44, an increase of 29%; non-GAAP EPS of $0.58, an
increase of 28%

Announces $10 billion stock repurchase authorization

Global technology platform and digital payments leader PayPal Holdings,
Inc. (NASDAQ:PYPL) today announced second quarter results for the
period ended June 30, 2018.

Financial highlights for second quarter 2018

  • Revenue growth of 23% to $3.86 billion, or 22% on a foreign
    currency-neutral (FX-neutral or FXN) basis
  • GAAP operating margin of 14.8%, with non-GAAP operating margin of 21.3%
  • GAAP EPS of $0.44, an increase of 29%, with non-GAAP EPS of $0.58, an
    increase of 28%
  • Repurchased 6.1 million shares of common stock, returning
    approximately $500 million to stockholders

Operating highlights for second quarter 2018

  • 7.7 million active accounts added, with net new active accounts up 18%
  • 2.3 billion payment transactions, up 28%
  • $139 billion in total payment volume (TPV), up 29%, or 27% on an
    FX-neutral basis
  • 35.7 payment transactions per active account on a trailing twelve
    months basis, up 9%

"Our customer choice initiatives, partnership strategy and continued
focus on being a customer champion are contributing to our sustained
strong performance. We are pleased to have announced four acquisitions
in the second quarter that advance our merchant value proposition and
geographic reach. Our strategic decision to become an open platform
committed to partnerships has increased the value that PayPal can offer
our customers, both consumers and merchants," said Dan Schulman,
President and CEO of PayPal.

PayPal's expanding value proposition

PayPal processed $139 billion in TPV in the second quarter, representing
growth of 29%, or 27% on an FX-neutral basis. Merchant Services TPV grew
30% on an FX-neutral basis, and represented 88% of overall TPV for the
quarter versus approximately 86% a year ago. eBay Marketplaces volume
grew 6% on an FX-neutral basis.

Person-to-Person (P2P) volume grew 50% to more than $33 billion, and
represented approximately 24% of TPV in the second quarter. Venmo, the
company's social payments platform, processed more than $46 billion of
TPV over the past twelve months. In the second quarter, Venmo processed
more than $14 billion of TPV, growing 78% over the same period last year.

Driven by strong mobile engagement on its platform, PayPal processed
approximately $54 billion in mobile payment volume in the second
quarter, representing approximately 49% growth year over year. In the
quarter, mobile payment volume represented 39% of overall TPV.

PayPal announced four strategic acquisitions in the second quarter
2018

During the second quarter PayPal announced the acquisitions of iZettle,
Hyperwallet, Simility and Jetlore:

  • In May 2018, PayPal announced the acquisition of iZettle for
    approximately $2.2 billion in cash. With the acquisition of iZettle,
    PayPal plans to expand its in-store presence. The acquisition is
    expected to close in the third quarter of 2018, and is subject to
    customary closing conditions, including regulatory approval.
  • In June 2018, PayPal announced the acquisition of Hyperwallet for
    approximately $400 million in cash. With the acquisition of
    Hyperwallet, PayPal plans to enhance its payout capabilities,
    improving its ability to provide an integrated suite of payment
    solutions to ecommerce platforms and marketplaces around the world.
    The acquisition is expected to close in the fourth quarter of 2018,
    and is subject to customary closing conditions, including regulatory
    approvals.
  • In June 2018, PayPal announced the acquisition of Simility for
    approximately $120 million in cash. This transaction closed in July
    2018. PayPal acquired Simility to enhance its ability to deliver fraud
    prevention and risk management solutions to merchants globally.
  • In May 2018, PayPal announced and closed the acquisition of Jetlore
    for approximately $16 million in cash. Jetlore is an AI-powered
    prediction platform used by some of the world's top retailers. PayPal
    acquired Jetlore to enhance and accelerate PayPal Marketing Solutions,
    adding new capabilities that continue to expand PayPal's value
    proposition for merchants beyond the online checkout experience.

PayPal and Synchrony complete U.S. consumer credit receivables sale

PayPal also announced the closing of its consumer credit receivables
transaction with Synchrony in July 2018. Under the terms of the
transaction, and related transactions with unaffiliated third parties,
Synchrony acquired $7.6 billion in receivables, including PayPal's U.S.
consumer credit receivables portfolio, which totaled $6.8 billion at the
time of closing, and approximately $0.8 billion in participation
interests in receivables held by unaffiliated third parties. PayPal
received approximately $6.9 billion in total consideration at closing.
The expanded agreement with Synchrony Bank for both the U.S. PayPal
Credit online consumer financing program and the U.S. PayPal-branded
consumer credit card program allows PayPal to collaborate with an
industry leader to enrich and expand PayPal's consumer credit offerings.

$10 billion stock repurchase authorization

PayPal announced today that its board of directors has authorized a new
stock repurchase program, under which the company may repurchase up to
$10 billion in outstanding common stock. This program will become
effective after completion of the company's previously announced $5
billion stock repurchase program, of which $2.7 billion remained
available as of June 30, 2018.

 

Second Quarter 2018 Financial and
Operating Highlights

 
 

Second Quarter

(presented in millions, except per share data and percentages)

2018

 

2017

 

YoY Growth

 

FX-Neutral
YoY Growth

Total Payment Volume (TPV)(1) $ 139,403 $ 107,800 $ 31,603   29 % 27 %
GAAP
Net revenues $ 3,857 $ 3,136 $ 721 23 % 22 %
Operating margin 14.8 % 13.7 % ** 112bps N/A
Effective tax rate 13.6 % 8.1 % ** 558 bps N/A
Net income $ 526 $ 411 $ 115 28 % N/A
Earnings per diluted share $ 0.44 $ 0.34 $ 0.10 29 % N/A
Net cash (used in) provided by operating activities(2) $ 28 $ 921 $ (893 ) (97 %) N/A
Non-GAAP
Net revenues $ 3,857 $ 3,136 $ 721 23 % 22 %
Operating margin 21.3 % 21.0 % ** 25bps N/A
Effective tax rate 18.0 % 18.0 % ** (8)bps N/A
Net income $ 703 $ 554 $ 149 27 % N/A
Earnings per diluted share $ 0.58 $ 0.46 $ 0.12 28 % N/A
Free cash flow(2) $ (170 ) $ 747 $ (917 ) (123 %) N/A
 

Cash, Cash Equivalents and Investments - PayPal's cash, cash
equivalents and investments totaled $6.3 billion as of June 30, 2018.

Short-Term Borrowings - PayPal's notes payable totaled $2.0
billion as of June 30, 2018.

(1) All metrics are presented consistent with the
updated definitions in the Form 8-K filed on April 10, 2018.

(2) Cash flow from operations and free cash flow in
the second quarter of 2018 reflect the impact of held for sale
accounting. Adjusting for the impact of held for sale accounting of $907
million on the U.S. consumer credit portfolio, free cash flow in the
quarter would have been $737 million. In addition, cash flow from
operations and free cash flow in the second quarter of 2018 reflect the
impact of the first annual cash tax payment of $125 million relating to
the transition tax under the U.S. Tax Cut and Jobs Act of 2017.

** Not meaningful.

2018 Financial Guidance

Full year 2018 revenue and earnings guidance

  • PayPal raises revenue and non-GAAP EPS guidance for full year 2018.
  • PayPal expects revenue to grow 17 - 19% at current spot rates and 16 -
    18% on an FX-neutral basis, to a range of $15.30 - $15.50 billion. As
    previously disclosed, full year 2018 revenue guidance includes an
    expected impact related to the sale of U.S. consumer credit
    receivables to Synchrony Financial of approximately 3.5 percentage
    points for full year 2018.
  • PayPal expects GAAP earnings per diluted share in the range of $1.44 -
    $1.51 and non-GAAP earnings per diluted share in the range of $2.32 -
    $2.35.
  • Estimated non-GAAP amounts above for the twelve months ending December
    31, 2018, reflect adjustments of approximately $1.37 - $1.47 billion,
    primarily representing estimated stock-based compensation expense and
    related payroll taxes in the range of $885 - $915 million.
  • Estimated GAAP and non-GAAP results include the expected impact of
    completed acquisitions and acquisitions that have been announced and
    are expected to close before the end of 2018.

Third quarter 2018 revenue and earnings guidance

  • PayPal expects revenue to grow 12% - 13% at current spot rates and 12%
    - 13% on an FX-neutral basis, to a range of $3.62 - $3.67 billion.
  • PayPal expects GAAP earnings per diluted share in the range of $0.31 -
    $0.34 and non-GAAP earnings per diluted share in the range of $0.53 -
    $0.55.
  • Estimated non-GAAP amounts above for the three months ending September
    30, 2018, reflect adjustments of approximately $320 - $360 million,
    primarily representing estimated stock-based compensation expense and
    related payroll taxes in the range of $210 - $220 million.
  • Estimated GAAP and non-GAAP results include the expected impact of
    completed acquisitions and acquisitions that have been announced and
    are expected to close before the end of the third quarter of 2018.

Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of
Financial Performance" for important additional information.

Quarterly conference call and webcast

PayPal Holdings, Inc. will host a conference call to discuss second
quarter 2018 results at 3:00 p.m. Pacific Time today. A live webcast of
the conference call, together with a slide presentation that includes
supplemental financial information and reconciliations of certain
non-GAAP measures to their most directly comparable GAAP measures, can
be accessed through the company's Investor Relations website at https://investor.paypal-corp.com.
In addition, an archive of the webcast will be accessible for 90 days
through the same link.

PayPal Holdings, Inc. uses its Investor Relations website (https://investor.paypal-corp.com),
its PayPal Stories Blog (https://www.paypal.com/stories/us),
Twitter handles (@PayPal and @PayPalNews), LinkedIn page (https://www.linkedin.com/company/paypal),
Facebook page (https://www.facebook.com/PayPalUSA/),
YouTube channel (https://www.youtube.com/paypal),
Dan Schulman's LinkedIn profile (https://www.linkedin.com/in/dan-schulman/),
John Rainey's LinkedIn profile (www.linkedin.com/in/john-rainey-pypl),
Bill Ready's LinkedIn profile (https://www.linkedin.com/in/williamready/)
and Dan Schulman's Facebook profile (https://www.facebook.com/DanSchulmanPayPal/)
as a means of disclosing information about the company and for complying
with its disclosure obligations under Regulation FD. The information we
post through these channels may be deemed material. Accordingly,
investors should monitor these channels in addition to PayPal's press
releases, SEC filings, public conference calls and webcasts.

About PayPal

Fueled by a fundamental belief that having access to financial services
creates opportunity, PayPal Holdings, Inc. (NASDAQ:PYPL) is committed
to democratizing financial services and empowering people and businesses
to join and thrive in the global economy. Our open digital payments
platform gives PayPal's 244 million active account holders the
confidence to connect and transact in new and powerful ways, whether
they are online, on a mobile device, in an app, or in person. Through a
combination of technological innovation and strategic partnerships,
PayPal creates better ways to manage and move money, and offers choice
and flexibility when sending payments, paying or getting paid. Available
in more than 200 markets around the world, the PayPal platform,
including Braintree, Venmo and Xoom, enables consumers and merchants to
receive money in more than 100 currencies, withdraw funds in 56
currencies and hold balances in their PayPal accounts in 25 currencies.
For more information on PayPal, visit https://www.paypal.com/about.
For PayPal Holdings, Inc. financial information, visit https://investor.paypal-corp.com.

Presentation

All growth rates represent year-over-year comparisons, except as
otherwise noted. FX-neutral results are calculated by translating the
current period local currency results by the prior period exchange rate.
FX-neutral growth rates are calculated by comparing the current period
FX-neutral results with the prior period results, excluding the impact
from hedging activities. All amounts in tables are presented in U.S.
dollars, rounded to the nearest millions, except as otherwise noted. As
a result, certain amounts and rates may not sum or recalculate using the
rounded dollar amounts provided.

As previously disclosed, we have updated our definitions of Active
Accounts and Total Payment Volume (TPV) to capture the diversification
of PayPal's products and services through strategic partnerships, new
products and acquisitions. Prior period metric results for Active
Accounts, TPV, Number of Payment Transactions, and Payment Transactions
Per Active Account have been revised to reflect the updated definitions
of the metrics. For additional details, please see PayPal's Current
Report on Form 8-K filed with the Securities and Exchange Commission on
April 10, 2018.

Non-GAAP financial measures

This press release includes financial measures defined as "non-GAAP
financial measures" by the Securities and Exchange Commission (SEC)
including: non-GAAP net income, non-GAAP earnings per diluted share,
non-GAAP operating income, non-GAAP operating margin, non-GAAP effective
tax rate, free cash flow and adjusted free cash flow. For an explanation
of the foregoing non-GAAP measures, please see "Non-GAAP Measures of
Financial Performance" included in this press release. These measures
may be different from non-GAAP financial measures used by other
companies. The presentation of this financial information, which is not
prepared under any comprehensive set of accounting rules or principles,
is not intended to be considered in isolation of, or as a substitute
for, the financial information prepared and presented in accordance with
generally accepted accounting principles (GAAP). For a reconciliation of
these non-GAAP financial measures to the most directly comparable GAAP
measures, see "Non-GAAP Measures of Financial Performance,"
"Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,"
"Reconciliation of GAAP Net Income to Non-GAAP Net Income, GAAP Diluted
EPS to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to
Non-GAAP Effective Tax Rate," and "Reconciliation of Operating Cash Flow
to Free Cash Flow and Adjusted Free Cash Flow."

Forward-looking statements

This press release contains forward-looking statements relating to,
among other things, the future results of operations, financial
condition, expectations and plans of PayPal Holdings, Inc. and its
consolidated subsidiaries that reflect PayPal's current projections and
forecasts. Forward-looking statements can be identified by words such as
"may," "will," "would," "should," "could," "expect," "anticipate,"
"believe," "estimate," "intend," "plan," "project," "forecast" and other
similar expressions. Forward-looking statements include, but are not
limited to, statements regarding projected financial results for the
third quarter and full year 2018, impact and timing of acquisitions, and
projected future growth of PayPal's businesses. Forward-looking
statements are based upon various estimates and assumptions, as well as
information known to PayPal as of the date of this press release, and
are inherently subject to numerous risks and uncertainties. Accordingly,
actual results could differ materially from those predicted or implied
by forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to: changes in political,
business, economic, market and trade conditions, including any regional
or general economic downturn or crisis and any conditions that affect
payments or e-commerce growth; fluctuations in foreign currency exchange
rates; the competitive, regulatory, payment card association-related and
other risks specific to the PayPal, PayPal Credit, Braintree, Venmo,
Xoom and other products, especially as PayPal continues to expand
geographically and introduce new products and as new laws and
regulations related to payments and financial services come into effect;
the impact of PayPal's customer choice initiatives, including on its
funding mix and transaction expense; PayPal's ability to successfully
compete in an increasingly competitive environment for its businesses,
products and services, including competition for consumers and merchants
and the increasing importance of mobile payments and mobile commerce;
the outcome of legal and regulatory proceedings and PayPal's need and
ability to manage regulatory, tax and litigation risks as its products
and services are offered in more jurisdictions and applicable laws
become more restrictive; changes to PayPal's capital allocation or
management of operating cash; uncertainty surrounding the implementation
and impact of the United Kingdom's formal notification of its intent to
withdraw from the European Union; cyberattacks and security
vulnerabilities in PayPal products and services that could disrupt
business, reduce revenue, increase costs, harm us competitively, or lead
to liability; the effect of management changes and business initiatives;
any changes PayPal may make to its product offerings; the effect of any
natural disasters or other business interruptions on PayPal or PayPal's
customers; PayPal's ability to timely upgrade and develop its technology
systems, infrastructure and customer service capabilities at reasonable
cost; PayPal's ability to maintain the stability, security and
performance of its Payment Platform while adding new products and
features in a timely fashion; the risk that we may not realize the
expected benefits of the sale of U.S. consumer credit receivables to
Synchrony Financial; risks that planned acquisitions will not be
completed on contemplated terms, or at all, and that any businesses
PayPal may acquire will not perform in accordance with its expectations;
and PayPal's ability to profitably integrate, manage and grow businesses
that have been acquired or may be acquired in the future. The
forward-looking statements in this release do not include the potential
impact of any acquisitions or divestitures that may be announced and/or
completed after the date hereof.

More information about factors that could adversely affect PayPal's
results of operations, financial condition and prospects or that could
cause actual results to differ from those expressed or implied in
forward-looking statements is included under the captions "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in PayPal's most recent annual report on Form
10-K and its subsequent quarterly reports on Form 10-Q, copies of which
may be obtained by visiting PayPal's Investor Relations website at https://investor.paypal-corp.com
or the SEC's website at www.sec.gov.
All information in this release speaks as of July 25, 2018. For the
reasons discussed above, you should not place undue reliance on the
forward-looking statements in this press release. PayPal assumes no
obligation to update such forward-looking statements.

 
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Balance Sheet
 
  June 30,   December 31,
2018 2017
(In millions, except par value)
ASSETS
Current assets:
Cash and cash equivalents $ 2,840 $ 2,883
Short-term investments 2,125 2,812
Accounts receivable, net 283 283
Loans and interest receivable, net 1,803 1,314
Loans and interest receivable, held for sale 6,870 6,398
Funds receivable and customer accounts 19,188 18,242
Prepaid expenses and other current assets 1,075   713  
Total current assets 34,184   32,645  
Long-term investments 1,369 1,961
Property and equipment, net 1,567 1,528
Goodwill 4,331 4,339
Intangible assets, net 125 168
Other assets 101   133  
Total assets $ 41,677   $ 40,774  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 201 $ 257
Notes payable 2,000 1,000
Funds payable and amounts due to customers 20,688 19,742
Accrued expenses and other current liabilities 1,836 1,781
Income taxes payable 84   83  
Total current liabilities 24,809 22,863
Deferred tax liability and other long-term liabilities 1,849   1,917  
Total liabilities 26,658   24,780  
Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,184 and
1,200 shares outstanding as of June 30, 2018 and December 31, 2017,
respectively
Treasury stock at cost, 77 and 47 shares as of June 30, 2018 and
December 31, 2017, respectively
(4,311 ) (2,001 )
Additional paid-in-capital 14,434 14,314
Retained earnings 4,860 3,823
Accumulated other comprehensive income (loss) 36   (142 )
Total equity 15,019   15,994  
Total liabilities and equity $ 41,677   $ 40,774  
 
 
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Statement of Income
 
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
(In millions, except per share amounts)
 
Net revenues $ 3,857 $ 3,136 $ 7,542 $ 6,111
Operating expenses:
Transaction expense 1,362 1,064 2,637 2,051
Transaction and loan losses 334 308 639 608
Customer support and operations(1) 357 335 708 652
Sales and marketing (1) 313 284 598 522
Product development (1) 255 232 513 446
General and administrative (1) 368 282 707 547
Depreciation and amortization (1) 180 201 365 384
Restructuring and other charges 116     269   40
Total operating expenses 3,285   2,706   6,436   5,250
Operating income 572 430 1,106 861
Other income (expense), net 37   17   51   24
Income before income taxes 609 447 1,157 885
Income tax expense 83   36   120   90
Net income $ 526   $ 411   $ 1,037   $ 795
Net income per share:
Basic $ 0.44 $ 0.34 $ 0.87 $ 0.66
Diluted $ 0.44 $ 0.34 $ 0.86 $ 0.65
Weighted average shares:
Basic 1,187 1,202 1,190 1,203
Diluted 1,202 1,215 1,209 1,216
 
(1) Includes stock-based compensation as follows:
Customer support and operations 39 34 77 64
Sales and marketing 39 33 83 61
Product development 64 59 128 104
General and administrative 63 51 122 93
Depreciation and amortization 5   3   9   5
$ 210   $ 180   $ 419   $ 327
 
 
PayPal Holdings, Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
 
  Three Months Ended June 30,   Six Months Ended June 30,
2018   2017 2018   2017
(In millions)
 
Cash flows from operating activities:
Net income $ 526 $ 411 $ 1,037 $ 795
Adjustments:
Transaction and loan losses 334 308 639 608
Depreciation and amortization 180 201 365 384
Stock-based compensation 205 176 410 321
Deferred income taxes (2 ) 49 89 102
Gain on sale of principal loans receivable held for sale, net (5 ) (6 ) (10 ) (12 )
Cost basis adjustments to loans and interest receivable held for sale 116 244
Other (31 ) (31 )
Changes in assets and liabilities:
Accounts receivable (24 ) 2 1 38
Changes in loans and interest receivable held for sale, net (977 ) 6 (2,268 ) 12
Accounts payable 18 5 (17 ) 4
Income taxes payable (14 ) 4 (14 ) 21
Other assets and liabilities (298 ) (235 ) (766 ) (601 )
Net cash provided by (used in) operating activities 28   921   (321 ) 1,672  
Cash flows from investing activities:
Purchases of property and equipment (198 ) (174 ) (376 ) (322 )
Changes in principal loans receivable, net 262 (491 ) 1,000 (627 )
Purchases of investments (5,341 ) (4,847 ) (10,616 ) (11,956 )
Maturities and sales of investments 5,378 3,953 9,669 9,536
Acquisitions, net of cash acquired (16 ) (16 )
Funds receivable 473   (170 ) 902   397  
Net cash provided by (used in) investing activities 558   (1,729 ) 563   (2,972 )
Cash flows from financing activities:
Proceeds from issuance of common stock 65 74 78 86
Purchases of treasury stock (500 ) (89 ) (2,325 ) (606 )
Tax withholdings related to net share settlements of equity awards (37 ) (23 ) (372 ) (124 )
Borrowings under financing arrangements, net of repayments (1,076 ) (6 ) 999 (6 )
Funds payable and amounts due to customers 213   1,086   1,078   1,638  
Net cash (used in) provided by financing activities (1,335 ) 1,042   (542 ) 988  
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(56 ) 12   (63 ) 23  
Net change in cash, cash equivalents and restricted cash (805 ) 246 (363 ) (289 )
Cash, cash equivalents and restricted cash at beginning of period 8,727   5,584   8,285   6,119  
Cash, cash equivalents and restricted cash at end of period $ 7,922   $ 5,830   $ 7,922   $ 5,830  
Supplemental cash flow disclosures:
Cash paid for interest $ 18 $ 1 $ 26 $ 2
Cash paid (refund received) for income taxes, net $ 186 $ 25 $ 180 $ 73
 

PayPal Holdings, Inc.
Unaudited Summary of Consolidated
Net Revenues

We earn revenue from the following types of transactions:

  • Transaction revenues: Net transaction fees charged to consumers
    and merchants on a transaction basis primarily based on the volume of
    activity, or Total Payment Volume ("TPV"), processed through our
    Payments Platform, including our PayPal, PayPal Credit, Venmo,
    Braintree and Xoom products.
  • Other value added services: Net revenues derived principally
    from interest and fees earned on our loans and interest receivable,
    net and held for sale portfolio, subscription fees, gateway fees,
    gains on sale of participation interests in certain consumer loans
    receivable and working capital loans and advances, revenue share we
    earn through partnerships, interest earned on certain PayPal customer
    account balances, and fees earned through other services that we
    provide to consumers and merchants.
 
Net Revenues by Type   Three Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,
2018 2018 2017 2017 2017
(In millions, except percentages)
Transaction revenues(1) $ 3,318 $ 3,197 $ 3,244 $ 2,858 $ 2,775
Current quarter vs prior quarter 4 % (1 )% 14 % 3 % 6 %
Current quarter vs prior year quarter 20 % 22 % 23 % 22 % 18 %
Percentage of total 86 % 87 % 87 % 88 % 88 %
 
Other value added services(1) 539 488 500 381 361
Current quarter vs prior quarter 10 % (2 )% 31 % 6 % 3 %
Current quarter vs prior year quarter 49 % 39 % 47 % 15 % 19 %
Percentage of total 14 % 13 % 13 % 12 % 12 %
 
Total net revenues $ 3,857 $ 3,685 $ 3,744 $ 3,239 $ 3,136
Current quarter vs prior quarter 5 % (2 )% 16 % 3 % 5 %
Current quarter vs prior year quarter 23 % 24 % 26 % 21 % 18 %
 
(1) Prior period amounts have been revised to conform to
current period presentation. For additional details, please see
PayPal's Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 10, 2018.
 

Net Revenues by Geography

  Three Months Ended
June 30,   March 31,   December 31,   September 30,   June 30,
2018 2018 2017 2017 2017
(In millions, except percentages)
U.S. net revenues $ 2,150 $ 2,023 $ 2,045 $ 1,743 $ 1,690
Current quarter vs prior quarter 6 % (1 )% 17 % 3 % 5 %
Current quarter vs prior year quarter 27 % 26 % 30 % 21 % 20 %
Percent of total 56 % 55 % 55 % 54 % 54 %
 
International net revenues 1,707 1,662 1,699 1,496 1,446
Current quarter vs prior quarter 3 % (2 )% 14 % 3 % 6 %
Current quarter vs prior year quarter 18 % 21 % 21 % 22 % 16 %
(FXN) Current quarter vs prior year quarter 16 % 18 % 21 % 22 % 20 %
Percent of total 44 % 45 % 45 % 46 % 46 %
 
Total net revenues $ 3,857 $ 3,685 $ 3,744 $ 3,239 $ 3,136
Current quarter vs prior quarter 5 % (2 )% 16 % 3 % 5 %
Current quarter vs prior year quarter 23 % 24 % 26 % 21 % 18 %
(FXN) Current quarter vs prior year quarter 22 % 22 % 26 % 22 % 20 %
 
 
PayPal Holdings, Inc.
Unaudited Supplemental Operating Data
 
  Three Months Ended,
June 30,   March 31,   December 31,   September 30,   June 30,
2018 2018 2017 2017 2017
(In millions, except percentages)
Active accounts(1),(2) 244 237 229 220 212
Current quarter vs prior quarter 3 % 4 % 4 % 4 % 3 %
Current quarter vs prior year quarter 15 % 15 % 15 % 13 % 12 %
 
Number of payment transactions(1),(3) 2,327 2,214 2,240 1,941 1,817
Current quarter vs prior quarter 5 % (1 )% 15 % 7 % 3 %
Current quarter vs prior year quarter 28 % 25 % 25 % 25 % 22 %
 
Payment transactions per active account(1),(4) 35.7 34.7 34.0 33.3 32.8
Current quarter vs prior quarter 3 % 2 % 2 % 2 % 2 %
Current quarter vs prior year quarter 9 % 8 % 8 % 8 % 10 %
 
Total Payment Volume(1),(5) $ 139,403 $ 132,364 $ 132,515 $ 115,224 $ 107,800
Current quarter vs prior quarter 5 % % 15 % 7 % 7 %
Current quarter vs prior year quarter 29 % 32 % 32 % 30 % 23 %
(FXN) Current quarter vs prior year quarter 27 % 27 % 29 % 28 % 25 %
 
Transaction Expense Rate(1),(6) 0.98 % 0.96 % 0.96 % 0.96 % 0.99 %
Transaction and Loan Loss Rate(1),(7) 0.24 % 0.23 % 0.03 % 0.32 % 0.29 %
Transaction Margin(8) 56.0 % 57.1 % 65.1 % 54.8 % 56.3 %

Amounts in the table are rounded to the nearest million, except as
otherwise noted. As a result, certain amounts may not recalculate
using the rounded amounts provided.

(1) Prior period results have been revised to reflect
updated definitions of the metrics presented in this table. For
additional details, please see PayPal's Current Report on Form 8-K
filed with the Securities and Exchange Commission on April 10,
2018.

(2) An active account is an account registered directly
with PayPal or a platform access partner that has completed a
transaction through our Payments Platform, not including
gateway-exclusive transactions, within the past 12 months.

(3) Payment transactions are the total number of
payments, net of payment reversals, successfully completed through
our Payments Platform, not including gateway-exclusive
transactions.

(4) Number of payment transactions per active account
reflects the total number of payment transactions within the
previous 12 month period, divided by active accounts at the end of
the period.

(5) TPV is the value of payments, net of reversals,
successfully completed through our Payments Platform or enabled by
PayPal via a partner payment solution, not including
gateway-exclusive transactions.

(6) Transaction expense rate is calculated by dividing
transaction expense by TPV.

(7) Transaction and loan loss rate is calculated by
dividing transaction and loan loss by TPV.

(8) Transaction margin is total revenue less
transaction expense and transaction and loan loss, divided by
total revenue.

 

PayPal Holdings, Inc.
Non-GAAP Measures of Financial
Performance

To supplement the company's condensed consolidated financial statements
presented in accordance with generally accepted accounting principles,
or GAAP, the company uses non-GAAP measures of certain components of
financial performance. These non-GAAP measures include non-GAAP net
income, non-GAAP net income per diluted share, non-GAAP operating
income, non-GAAP operating margin, non-GAAP effective tax rate, free
cash flow and adjusted free cash flow.

These non-GAAP measures are not in accordance with, or an alternative
to, measures prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules or
principles. Non-GAAP measures have limitations in that they do not
reflect all of the amounts associated with the company's results of
operations as determined in accordance with GAAP. These measures should
only be used to evaluate the company's results of operations in
conjunction with the corresponding GAAP measures.

Reconciliation to the most directly comparable GAAP measure of all
non-GAAP measures included in this press release can be found in the
tables included in this press release.

These non-GAAP measures are provided to enhance investors' overall
understanding of the company's current financial performance and its
prospects for the future. Specifically, the company believes the
non-GAAP measures provide useful information to both management and
investors by excluding certain expenses, gains and losses, as the case
may be, that may not be indicative of its core operating results and
business outlook. In addition, because the company has historically
reported certain non-GAAP results to investors, the company believes
that the inclusion of non-GAAP measures provides consistency in the
company's financial reporting.

For its internal budgeting process, and as discussed further below, the
company's management uses financial measures that do not include
stock-based compensation expense, employer payroll taxes on stock-based
compensation, amortization or impairment of acquired intangible assets,
impairment of goodwill, restructuring-related charges, other certain
gains, losses, benefits or charges that are not indicative of the
company's core operating results and the income taxes associated with
the foregoing. In addition to the corresponding GAAP measures, the
company's management also uses the foregoing non-GAAP measures in
reviewing the financial results of the company.

The company excludes the following items from non-GAAP net income,
non-GAAP net income per diluted share, non-GAAP operating income,
non-GAAP operating margin and non-GAAP effective tax rate:

Stock-based compensation expense and related employer payroll taxes.
This consists of expenses for equity awards under our equity incentive
plans. We exclude stock-based compensation expense from our non-GAAP
measures primarily because they are non-cash expenses. The related
employer payroll taxes are dependent on our stock price and the timing
and size of exercises and vesting of equity awards, over which
management has limited to no control, and as such management does not
believe it correlates to the operation of our business.

Amortization or impairment of acquired intangible assets, impairment
of goodwill, and transaction expenses from the acquisition or disposal
of a business.
We incur amortization or impairment of acquired
intangible assets and goodwill in connection with acquisitions and may
incur significant gains or losses or transactional expenses from the
acquisition or disposal of a business and therefore exclude these
amounts from our non-GAAP measures. We exclude these items because
management does not believe they are reflective of our ongoing operating
results.

Restructuring. These consist of expenses for employee severance
and other exit and disposal costs. The company excludes significant
restructuring charges primarily because management does not believe they
are reflective of ongoing operating results.

Certain other significant gains, losses, benefits, or charges that
are not indicative of the company's core operating results.
These
are significant gains, losses, benefits, or charges during a period that
are the result of isolated events or transactions which have not
occurred frequently in the past and are not expected to occur regularly
in the future. The company excludes these amounts from its non-GAAP
results because management does not believe they are indicative of its
current or ongoing operating results.

Tax effect of non-GAAP adjustments. This adjustment is made to
present stock-based compensation and the other amounts described above
on an after-tax basis consistent with the presentation of non-GAAP net
income.

The company also uses free cash flow, a non-GAAP measure. Free cash flow
represents operating cash flows less purchases of property and
equipment. The company considers free cash flow to be a liquidity
measure that provides useful information to management and investors
about the amount of cash generated by the business after the purchases
of property, buildings, and equipment, which can then be used to, among
other things, invest in the company's business, make strategic
acquisitions, and repurchase stock. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not
represent the total increase or decrease in the company's cash balance
for the period.

In addition to the non-GAAP measures discussed above, the company also
analyzes certain measures, including net revenues and operating
expenses, on an FX-neutral basis to better measure the comparability of
operating results between periods. The company believes that changes in
foreign currency exchange rates are not indicative of the company's
operations and evaluating growth in net revenues and operating expenses
on an FX-neutral basis provides an additional meaningful and comparable
assessment of these measures to both management and investors.
FX-neutral results are calculated by translating the current period's
local currency results with the prior period's exchange rate. FX-neutral
growth rates are calculated by comparing the current period's FX-neutral
results by the prior period's results, excluding the impact from hedging
activities.

 
PayPal Holdings, Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating
Margin
 
  Three Months Ended June 30,
2018   2017
(In millions, except percentages)
(unaudited)
GAAP operating income $ 572 $ 430
Stock-based compensation expense and related employer payroll taxes 223 192
Amortization of acquired intangible assets 25 22
Other(1)   15  
Total non-GAAP operating income adjustments 248   229  
Non-GAAP operating income $ 820   $ 659  
Non-GAAP operating margin 21 % 21 %

(1) Impairment of investment in intellectual
property fund.

 
 
Reconciliation of GAAP Net Income to Non-GAAP Net Income,
GAAP Diluted EPS to Non-GAAP Diluted EPS,
and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate
 
  Three Months Ended June 30,
2018   2017
(In millions, except per share data and percentages)
(unaudited)
GAAP income before income taxes $ 609 $ 447
GAAP income tax expense 83   36  
GAAP net income 526 411
Non-GAAP adjustments to net income:
Non-GAAP operating income adjustments (see table above) 248 229
Other(1) 32
Tax effect of non-GAAP adjustments (103 ) (86 )
Non-GAAP net income $ 703   $ 554  
 
Diluted net income per share:
GAAP $ 0.44 $ 0.34
Non-GAAP $ 0.58 $ 0.46
Shares used in GAAP diluted share calculation 1,202 1,215
Shares used in non-GAAP diluted share calculation 1,202 1,215
 
GAAP effective tax rate 14 % 8 %
Tax effect of non-GAAP adjustments to net income 4 % 10 %
Non-GAAP effective tax rate 18 % 18 %

(1) Tax expense related to the Tax Cuts and Jobs Act.

 
 
PayPal Holdings, Inc.
Reconciliation of Operating Cash Flow to Free Cash Flow and
Adjusted Free Cash Flow
 
  Three Months Ended June 30,
2018   2017
(In millions/unaudited)
Net cash provided by operating activities $ 28 $ 921
Less: Purchases of property and equipment (198 ) (174 )
Free cash flow $ (170 ) $ 747  
Impact of held for sale accounting presentation on cash flow from
operating activities
907    
Adjusted free cash flow $ 737   $ 747  
 

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