Investors in PayPal Holdings Inc. (PYPL -0.86%) had plenty of reason to cheer when the company reported its third-quarter results on Oct. 19. PayPal's net revenue came in at $3.24 billion, a 21% increase year over year, and its non-GAAP earnings per share rose to $0.46, good for a 31% annual increase. This quarter was better than just consistently good revenue and earnings growth. The company's metrics on customer growth and engagement levels also showed accelerating growth.
PayPal added 8.2 million net new active customer accounts in the quarter, a record for the company in its recent history. PayPal now has 218 million active accounts, a 14% year-over-year increase. Not only does the company have more accounts, but users are also using their accounts more often. Active accounts are now averaging 32.8 transactions over the trailing 12 months, a 9% increase over last year's third-quarter numbers. As PayPal CEO Dan Schulman said, "I pay particular attention to these measures, as they represent a direct form of feedback on our value proposition, customer experiences, and brand."
What's driving this strong customer growth and deepening user engagement? While there are obviously several factors at play, one of the biggest is that PayPal is riding the massive macro trend of mobile commerce, also known as m-commerce. As buying things on smartphones and other mobile devices increases, there might be no better company poised to capitalize on this growth than PayPal.
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M-commerce growth is undeniable
Earlier this year, comScore, a consulting group specializing in measuring cross-platform consumer behavior, noted that people spend more time shopping on mobile devices than PCs by a whopping 2-to-1 margin. Business Insider projects m-commerce to reach 45% of total e-commerce sales by 2020, good for about $284 billion.
This data only reinforces what most of us are doing and observing in our daily lives. It seems that every day I grow more dependent on my smartphone. I use it to set my calendar, navigate, check my email, and review the news. And, yes, I have used it much more to make purchases in the past year than ever before.
PayPal's mobile success
There is no denying that PayPal has successfully ridden this trend and its stock price has risen an amazing 80% year to date. PayPal's mobile payment volume rose to about $40 billion in its third quarter, good for a 54% increase year over year. Mobile payment volume, payments that originate from a mobile device, now makes up about 35% of PayPal's total payment volume.
In the company's conference call following earnings, transcribed by S&P Global Market Intelligence, Schulman said: "Mobile is becoming the defining force in digital payments. It is rapidly blurring the distinction between online and offline and accelerating the adoption of digital payments." Schulman also noted the company's huge success with mobile payments and credited the company's investments in the area for serving as the catalyst:
Mobile payments led our growth again, growing approximately 54% to $40 billion in the quarter. We saw these trends are the direct result of investments made across the business. We have increased the availability of our platform and significantly improved our customer experience across an ever-growing suite of products and services.
Perhaps no investment has better paid off in this area than the innovative One Touch platform, which allows users to permanently log in to PayPal by registering a device. Once the device is registered, users can check out at any website accepting PayPal with literally "one touch." That means users don't have to enter a credit card number, billing or delivery address, or any other cumbersome piece of information that hinders retailers' checkout experience.
One Touch's convenience and success fuel its growth
As a user, I can testify that the experience is beyond convenient. I now even find myself upset at vendors when they don't offer PayPal as a payment method. After all, who wants to pull out a credit card and enter all that information on a small mobile screen? Not me!
It's no wonder that One Touch features a sales conversion rate two times better than the industry average. In other words, once started, consumers are more than twice as likely to complete a purchase when the merchant offers PayPal's One Touch as a payment method. That's a huge selling point. It's no wonder then, that now 70 million consumers and 6 million merchants participate in the platform. That's good for 119% and 50% increases, respectively, from last year's third quarter. One Touch is one of the primary ways PayPal is removing friction from payments and making the checkout experience as seamless as possible.
PayPal has positioned itself exceptionally well to not only benefit from the rise of e-commerce, but m-commerce as well. With these two macro trends showing no signs of slowing down, PayPal's shareholders should enjoy several more quarters of growth ahead.