PayPal (NASDAQ:PYPL) investors have been having a banner year thus far in 2018, as the digital payment processing giant has exceeded expectations each quarter and continued to raise its guidance. This classic "beat and raise" formula pushed the stock higher for much of the year, but the recent market downturn took a toll.

Still, the company's third-quarter results showed that from a business perspective, PayPal hasn't lost any of its momentum, delivering another expectation-beating quarter.

The PayPal logo on a plexiglass surface, outside its headquarters.

Image source: PayPal.

The growth spurt continues


Q3 2018

Q3 2017

YOY Change


$3.68 billion

$3.24 billion


Operating margin



24 basis points

Net income

$436 million

$380 million


Diluted earnings per share




Data source: PayPal's Third-Quarter Financial Release. YOY = year over year.

PayPal reported revenue of $3.68 billion, an increase of 14% year over year, ahead of analysts' consensus estimates and topping the high end of the company's own guidance. Expanding operating margins made PayPal more profitable, as net income of $436 million resulted in adjusted earnings per share of $0.58, also ahead of analysts' expectations and at the high end of PayPal's forecast. The company said the sale of its U.S. consumer credit receivables portfolio to Synchrony Financial negatively affected revenue growth by about 7%.

Lots to like

It wasn't just the financial results that impressed, as PayPal's operational metrics were robust as well. The company added 9.1 million net new active customers, up 11% year over year, growing its customer base to 254 million, an increase of 15% compared to the prior-year quarter. PayPal is not only adding new customers, it's increasing engagement among its existing users, who used the service 36.5 times over the preceding 12-month period, up 9.5% year over year.

The combination of higher engagement and new customers lifted the number of payment transactions to 2.5 billion, up 27% compared to the prior-year quarter. The total value of those transactions increased as well, producing $143 billion in total payment volume (TPV), up 24% year over year and 25% on a currency neutral basis.

Mobile engagement continued to boost growth, contributing $57 billion in mobile payment volume, up 45% year over year, and accounting for 40% of all TPV. Venmo generated $17 billion in payments, up 78% compared to the prior-year quarter.

Big announcements

During the quarter, PayPal revealed its Funds Now initiative, which gives merchants instant access to funds by eliminating the holds that are standard in the industry. This program is available to sellers in the U.S., U.K., and Australia.

The company also announced a strategic partnership with American Express, which will result in a deep integration of PayPal capabilities and allow its app to access American Express tokens, facilitating payments and the use of American Express rewards at merchants that accept PayPal. The company also announced an alliance with Walmart that will allow U.S. shoppers to add and withdraw funds from their PayPal accounts.

"PayPal had another excellent quarter. New partnerships with American Express and Walmart will increase the value that we can offer to our customers," said Dan Schulman, president and CEO of PayPal. "Our strong balance sheet and cash flow enable us to aggressively invest in innovation and growth, creating sustainable and long-term value for our shareholders."

A glimpse into the future

PayPal increased its full-year guidance for the third time in as many quarters, and it narrowed its revenue forecast to the high end of its previously announced range.


Previous Guidance

Current Guidance



$15.3 billion to $15.5 billion

$15.42 billion to $15.5 billion


Adjusted earnings per share

$2.32 to $2.35

$2.38 to $2.40


Data source: PayPal Financial Releases.

For the upcoming fourth quarter, PayPal is expecting revenue in a range of $4.195 billion to $4.275 billion, which would represent 14% growth at the midpoint of its guidance, and includes a 7% adjustment related to the sale of receivables to Synchrony Financial. PayPal is anticipating adjusted earnings per share of between $0.65 and $0.67.

Analysts' consensus estimates are pegged near the high end of PayPal's guidance, calling for revenue of $4.24 billion and earnings per share of $0.67.

PayPal continues to lay the groundwork that will pay dividends down the road, expanding its stable of partners and giving users more incentives and opportunities to use its services. The company is also expanding and engaging its merchant base. This growing network of partners, merchants, and customers bodes well for PayPal's continued growth far into the future.

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