In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Matt Argersinger, David Kretzmann, and Aaron Bush take a gander at PayPal (NASDAQ:PYPL), which had great growth across the board in the second quarter.
Venmo, in particular, is soaring. But the company also announced Q3 guidance that its CFO later said had been misunderstood. What interested the Fools beyond that was its share buyback plan, which -- for all the cash it returns to investors -- struck some of them as a bit disturbing.
A full transcript follows the video.
This video was recorded on July 27, 2018.
Chris Hill: PayPal's stock is at an all-time high this week after strong second quarter results, but guidance for the third quarter sent the stock falling. PayPal's Chief Operating Officer said that some investors misunderstood their guidance. What do you think, Aaron?
Aaron Bush: I think they might have misguided the guidance. This quarter itself was really strong. Revenue grew 23%, earnings grew even faster. By all key metrics, they're making steady progress. They added 18% more accounts year over year, and the number of transactions grew 28%. That tells me, not only are they adding new people, but the users who use PayPal and their services are using them more frequently. There's a strong network effect going on there. I don't think that's going to go away.
I think it's also important to mention that Venmo has been on fire. Payment volume there was up 78% year over year, and it now represents a quarter of all of PayPal's payment volume. I do think part of the slowdown could come from a natural slowdown in Venmo, now that it's becoming a larger part of their payment volume.
But, they do have a lot of other stuff going on. They announced a $10 billion buyback, which told a lot of investors, "Wait, you don't have anything better to do with that $10 billion?"
Hill: That was my reaction! This is a relatively young company, it has a market cap of $100 billion. That was exactly what I thought when I saw that. Like, really? You have nothing else to do with $10 billion?
Bush: Yeah, I don't really know what to make of that. I will say, though, just in the past quarter, they have made four acquisitions, and they've made plenty of acquisitions before. I don't think that's true, that they don't have anything better to do with it. I just think that gushing lots of money is a good problem to have, and they're just figuring out what to do with it.