PayPal announced that Amazon customers will be able to pay using Venmo starting in 2022, helping the company mute the reaction to a Q3 revenue miss.
The announcement came as the company released its Q3 earnings Thursday after the market closed. PayPal (NASDAQ: PYPL) stock was up more than 1.5% in after-hours trading Thursday.
Revenue in the quarter came in just under expectations at $6.18 billion, up 13% year-over-year, but missing the Seeking Alpha consensus of $6.42 billion. PayPal posted a non-GAAP earnings per share of $1.11, easily besting the consensus EPS of $1.08, according to Seeking Alpha. EPS was $1.07 in Q3 2020. GAAP earnings per share was 92 cents in this quarter compared to 86 cents a year ago.
“Our third-quarter results show solid growth on top of a record year,” Dan Schulman, president and CEO, said in a statement. “The strength of PayPal’s two-sided platform and ubiquity in our core markets has set us up to grow at scale, expand our work with existing merchants and attract new partners. We’re thrilled that we are teaming up with Amazon to enable customers in the U.S. to pay with Venmo at checkout.”
Venmo processed approximately $60 billion in total payment volume (TPV), the company said, up 36% year-over-year. That should rise next year once purchases on Amazon (NASDAQ: AMZN) are allowed. Walmart is also now accepting PayPal as a payment option at checkout.
“This is obviously a very significant moment in our Venmo monetization moment,” Schulman said on an investor conference call, adding that this was possible due to the expiration of a contract with eBay that restricted such an agreement with Amazon.
Schulman added that the revenue miss was due to a weaker-than-expected back-to-school sales and lower travel expectations.
The company said it added 13.3 million net new active accounts and ended Q3 with a total of 416 million active accounts. TPV increased 24%, to $310 billion. PayPal reported operating income of $1.04 billion, up 7% year-over-year.
PayPal processed 4.9 billion payment transactions in the quarter, up 22% year-over-year, for an average of 44.2 payment transactions per active account on a 12-month trailing basis. That is up 10%. In its Merchant Services division, volume grew 31% and represents 97% of TPV while eBay Marketplaces volume declined 45% and now represents 3% of TPV, down from 7% a year ago.
Cash, cash equivalents and investments totaled $20 billion as of Sept. 30, 2021, while debt stands as $8.9 billion. Cash flow generated from operations was $1.51 billion, up 15%.
PayPal said it expects net revenue for Q4 to be in the range of $6.85 billion and $6.95 billion, and non-GAAP diluted EPS to grow about 4%, to $1.12. GAAP diluted EPS is expected to be about 79 cents compared to $1.32 in the prior year period. The company noted that GAAP EPS for 2020 included a net gain of 60 cents due to PayPal’s strategic investment portfolio.
For fiscal year 2021, PayPal expects net revenue in the range of $25.3 billion to $25.4 billion, representing 18% growth over 2020, and non-GAAP EPS of $4.60 and GAAP EPS of $3.62.
It was a busy quarter for the payments company. PayPal became involved in a Department of Justice (DOJ) investigation into Visa’s relationships with it and other fintech firms, including Square and Stripe. DOJ is exploring allegations that Visa has been making payments to the fintechs as a way to entice those companies to avoid using other card companies. The Wall Street Journal said Visa has been offering lower fees in exchange for the companies to use their service more than others.
In September, PayPal announced a “super app” that would allow users to combine a digital wallet and payments applications into a single app. The PayPal app would combine financial tools like bill payment and management, direct deposit, QR code payments, in-store redemptions, buy-now, pay-later services, crypto services, and a savings account. Schulman said the functionality of the app will expand next year with new features.
PayPal was also reported to be exploring a potential purchase of Pinterest, but on Oct. 24, the company stated it was not pursuing the acquisition “at this time.” On the call, Schulman said exploring all potential opportunities that enhance shareholder value is our responsibility, but only a very few select deals meet our strict … requirements.” He did not reference the Pinterest opportunity specifically, but did not that PayPal’s market research is showing that consumers “prefer a connected” experience.
Also in October, PayPal closed its acquisition of Paidy, a buy-now, pay-later provider in Japan, for $2.7 billion.
“This will accelerate our momentum in Japan, a strategically important market and one of the largest e-commerce markets in the world,” Schulman said.
PayPal also expanded its cryptocurrency offerings including the ability to buy, hold and sell crypto in the U.K., and rolled out Cash Back to Crypto, which allows Venmo Credit Card users to purchase cryptocurrency from their Venmo account using cash back earned from card purchases.