In this segment of the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Supernova and Rule Breakers' David Kretzmann look at PayPal's (NASDAQ:PYPL) quarterly numbers and can't find a thing to complain about. Transaction numbers, volume, merchants and customer accounts are all rising at a serious clip. Meanwhile, Electronic Arts' (NASDAQ:EA) profits and revenue are shooting higher thanks to a host of popular titles and digital sales growth. Even The Sims is doing better than ever, 17 years after it launched.
A full transcript follows the video.
This video was recorded on July 28, 2017.
Chris Hill: If you needed more evidence that the war on cash is real, all you had to do is look at PayPal's latest results. Second quarter revenue was up, payment volume was up, new accounts were up. Everything was up, Matty.
Matt Argersinger: It's all up. It's all been up for PayPal, stock price, too, this year. It's incredible. Revenue was up 18%. To me, the number that really stood out was the number of payment transactions, growing $1.8 billion, 22% year over year. Total payment volume hit $106 billion. That's the first time it exceeded $100 billion for PayPal. It's amazing. They also added, by the way, 6.5 million new customer accounts. That's the largest quarterly gain in two years. Everything points to this network that PayPal has, and it's a two sided network. You have the customers, the users, and you have merchants. They're all interacting and transacting more than ever before. PayPal now has partnerships with virtually all the major credit card companies. It also has deals with Apple, Samsung, and recently signed a deal with Baidu to get into their digital wallet. So, PayPal is now more available than it's ever been, and it's more popular than it's ever been. I don't see that changing.
Hill: And you mentioned the new accounts. I was surprised to learn they have over 200 million people using their PayPal.
Argersinger: Right. And by the way, Venmo, which is their social payments platform, their transactions were up 100% year over year.
Hill: Electronic Arts with another monster quarter. The video game maker's first quarter profits and revenue up big thanks to high demand from some of their most popular titles. David, where do you want to start?
David Kretzmann: They've produced a record $1.5 billion free cash flow over the past year. This is really due to digital, and moving online. Digital makes up over 63% of their total sales, and that's largely due to live services on their major titles, whether you're talking about FIFA, Battlefield, The Sims, NBA Live, Madden. Those live services are things like expansion packs to expand of the different maps and formats you can play in the game. You can compete against other players live online. And to demonstrate the power of this shift to digital, the last 12 months have been the best in Sims history, and that's a franchise that launched in 2000. 17 years in, The Sims is doing better than ever due to digital. So, a lot of things to like here. Players are more engaged when they compete against other players live, and I think that lends itself well to the sports titles in EA's franchises, NBA Live, FIFA, Madden. I think there's still a lot of room for them to expand going forward.
Hill: How are they doing, in terms of managing their cost? I think one thing that never fails to get headlines every now and then is, video game maker X is spending, insert triple-digit, hundreds of millions of dollars on a single game. I think for some investors, they look at that and immediately question, is that worth it?
Kretzmann: Electronic Arts actually has higher margins than Activision Blizzard, which for a long time was the king as far as that goes. But Electronic Arts, over the past several years, has really turned it around. They're targeting a 75% gross margin next year. It's part of the reason their cash flow, they're pumping it out. They are in a strong position.
Argersinger: It's interesting to see. If you look at Activision Blizzard, Electronic Arts, Take-Two Interactive, it's really shifted now to not rolling out 20 new games a year, which used to be how it was in the past. It's really now about investing a ton of money in proven franchises, spending years to develop them and knowing that you're going to knock it out of the park and probably get $1 billion in revenue. The interesting thing that the digital revolution has done, by cutting out the middleman, GameStop and all that, they're making more money than ever on these games, so they can actually afford to spend more on the quality of the games, rather than just focusing on rolling out as many games as possible.
Chris Hill has no position in any stocks mentioned. David Kretzmann owns shares of Activision Blizzard, Baidu, Electronic Arts, and Take-Two Interactive. Matthew Argersinger owns shares of Activision Blizzard, Apple, and Baidu. The Motley Fool owns shares of and recommends Activision Blizzard, Apple, Baidu, PayPal Holdings, and Take-Two Interactive. The Motley Fool owns shares of GameStop and has the following options: short October 2017 $22 calls on GameStop. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.