The market gave a bit of a ding to PayPal's (NASDAQ:PYPL) stock price last week after it delivered a quarterly report in which profits were a bit lower, but the fundamentals of the business are excellent.
In this segment of the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Andy Cross, Ron Gross, and Jason Moser review the growth numbers of the payments company, its strategy, and more. They also reflect on the wider war on cash, a trend PayPal will keep riding for years to come.
A full transcript follows the video.
This video was recorded on Feb. 1, 2019.
Chris Hill: Shares of PayPal down a bit this week after fourth quarter profits fell 6%. Jason, they're ramping up the spending. That's hitting their margins a little bit. I don't know. I'm a shareholder of this company, I'm good with this report.
Jason Moser: I'm a shareholder as well, and I agree. I'm good with the report. The stock sold off a little bit based on the expectations game, but you have to completely ignore that. The fundamentals of this business are as strong as ever. We were talking about Facebook and how scale is such a competitive advantage. Let's talk some big numbers here for PayPal. Total payment volume for the year, $578 billion, up 26%. Total transactions for the year $9.9 billion, up 27%. They now have 267 million total active accounts. Mobile total payments volume clocked in at $67 billion for the quarter. Venmo is now driving this business. They're at a $200 million run rate.
There are a lot of things going on with this business, and they're all good. I think if you're a shareholder, you have to look at this quarter and feel very encouraged.
Hill: Two things there. First, as someone who uses Veneto to send money to my college kid, we've said this before about things like Costco and Amazon Prime, and even Netflix. If they want to bump up the price, I'll pay it. Venmo has some room there if they want to start raising prices, in terms of some of their transaction fees. They're tiny.
Moser: That's a really good point. For the longest time, there were no transaction fees. And really, the fees that they've introduced are all based around that instant funding option. There's risk that PayPal and Venmo take on with that option, but the more data they get on those transactions, the more mitigated that risk becomes.
Hill: For all of the innovation that we've seen in the payment industry, with PayPal and Venmo and Square and all these others, am I wrong in thinking that Visa and MasterCard have... I hesitate to use the word "unassailable," Andy, but it seems like the moats that those two businesses have built are incredible.
Andy Cross: They're extensive. That's one reason also why they have returns on equity and capital north of 50% and profit margins, some of the highest in the S&P 500. You just think about the ability for them to be able to continue to take a little bit of a lick off the ice cream cone every transaction, continue to grow and grow, that's really good for MasterCard. They need to continue to reinvest back into that business. It's really small, hence why they buy back so much stock over the years.
Ron Gross: To come back full circle to eBay and activism, the PayPal discussion reminded me that it was Carl Icahn back in the day that pushed to have PayPal spun off of eBay. What a tremendous value creation that was.
Moser: Let me just take a minute here and personally thank Carl. I really appreciate that!
Hill: I was just going to say, do Jason and I need to send him a box of chocolate?
Gross: You need to do something!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Facebook, Mastercard, and Netflix. Chris Hill owns shares of Amazon and PayPal Holdings. Jason Moser owns shares of Amazon, Mastercard, PayPal Holdings, Square, and Visa. Ron Gross owns shares of Amazon, Costco Wholesale, Facebook, Mastercard, and Square. The Motley Fool owns shares of and recommends Amazon, Facebook, Mastercard, Netflix, PayPal Holdings, and Square. The Motley Fool owns shares of Visa. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.