Earnings season is in full swing, and in this episode of Industry Focus: Financials, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss the latest results from PayPal (NASDAQ:PYPL) and Visa (NYSE:V). Also, at the Money20/20 conference in Las Vegas, Frankel had a chance to sit down with Green Dot's (NYSE:GDOT) banking-as-a-service team for an update on the company's business and new partnership. Plus, we hear about some recent stocks our listeners bought.
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This video was recorded on Oct. 28, 2019.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Monday, October 28th. I'm your host Jason Moser. Joining me in the studio today on location at the Money20/20 conference there in lovely Las Vegas, Mr. Matt Frankel. Matt, how's everything going out there in Las Vegas?
Matt Frankel: Pretty good! It's actually colder than it normally is out here. It was about 45 degrees when I walked into the conference.
Moser: Wow! How long have you been out there?
Frankel: I got in yesterday about noon.
Moser: How long will you be there?
Frankel: I'm actually staying here all week. The conference only lasts through Wednesday, but my wife is flying out. We're going to have a much-needed break from the kiddos.
Moser: Oh, very, very good! Alright, smart move there! Yeah, leverage the work that's already being done. I like that!
Alright. Well, on today's Financials show, we're going to get into a couple of earnings reports. We're going to see what Matt's up to at this year's Money20/20 conference. We're going to talk about a couple of more of the last stock you bought and why. And we have some stocks to watch.
But first, let's go ahead and get things kicked off here with earnings. Last week, one of our favorite companies here to cover, Visa reported earnings. That was their fourth quarter of the year, wrapping up the fiscal year for Visa. I tell you, going through the release there, Matt, looking at the numbers and going through the call, for me, when I look at Visa and how they're doing, it's more about finding red flags or concerns. This is a fairly large business at this point, pretty predictable as far as what they're doing and the numbers that they'll be chalking up. Those numbers are good. Revenue was up 13% for the quarter. Total transactions were up 11% from a year ago. Payments volume up, cross-border payments up. It seems like they continue to do the things that we expect them to do. But wonder if there was anything that stood out in the quarter to you?
Frankel: Well, the thing you've been talking about since I've known you, at least, is the dividend. Visa finally gave a dividend increase, and a pretty big one.
Moser: Hey, now! I saw that. That was good!
Frankel: Yeah, they got a 20% increase, which is actually a little more aggressive than the revenue growth. 13% revenue growth, 20% dividend increase. From a shareholder's perspective, that's definitely what you would expect from a company that's getting to the more mature level. They're starting to prioritize shareholder payments instead of growing and growing and growing. It also tells you there's finite opportunities for them to reinvest their money back into business. That's definitely one thing that stood out to me.
Another thing to keep an eye on, expenses grew a little bit faster than revenue. Not necessarily in a bad way. Most of the increase was litigation charges.
Another thing that stood out is, marketing expense went up by 16% year over year compared with the 13% revenue growth. When you're spending more money on marketing than the growth it's producing, that's something to keep an eye on. Not necessarily a cause for concern. Like I said, it's definitely translating into growth in the right ways, but something to watch in the quarters ahead.
Moser: Yeah. To your point about the dividend, I love seeing that raise. They can obviously continue to raise it and we both expect that they will. To put some additional numbers around what they're returning the shareholders, for the quarter, they returned $2.7 billion to shareholders in the form of repurchases and dividends. On that repurchase point, it is something to note, the share count is down 20% since 2014. That always is part of thesis in investing in MasterCard or Visa. You know they're going to continue to use a lot of this cash that they generate, not only to reinvest in the business, but to return value to shareholders in the form of repurchases and dividends. As long as that share count keeps coming down, that's the point there. I think we can always be at least critical of companies that buy back their shares. But first and foremost, let's make sure that share count's coming down. It certainly looks like it is in Visa's case. Nothing surprising there.
One other thing I did want to note, because we had talked about this acquisition throughout the summer, this acquisition of Earthport. Visa has reached full ownership of Earthport. Ultimately, this is going to open up more cross-border payment functionality for the company. I think that's a big market opportunity. We're seeing Visa and MasterCard making big investments in that space. That was encouraging to see as well.
Let's take a look at PayPal here real quick. Another company we love talking about. You own shares, and I own shares, and probably a lot of our listeners out there own shares. To me, this is one I look at, and I feel like probably a lot of people out there wondering, have I missed the boat on this? Is it too late? I think that there's no way you can look at it from that perspective. There's so much opportunity left for this company to capture. So, while it has been a tremendous performer for such a long period of time, there's nothing to say that it can't keep performing. I think, given the trends that we know in regard to cash and how more people are looking to spend in other ways, partnerships that PayPal is reaching out and forming with other big players in the space, there are a lot of reasons to believe that PayPal will be able to continue to grow meaningfully in the coming years. What here in this most recent quarter stood out to you in regard to PayPal?
Frankel: First, a quick correction. I don't own PayPal right now. But I did. I used to. I got PayPal shares in the eBay spin-off, but I sold them a while ago. I'm considering buying it again, which answers your "is there a lot of room to grow still?" I think there definitely is. It's a stock that's on the top of my watch list, I just talk about it too much to find an opportune time to add shares. You know how that is.
Moser: I do, I do.
Frankel: There are two big things that stood out to me in PayPal's quarter. One, yes, their payment volume grew by 25%. But I don't think that's the big news. The average number of transactions per active account was up 9%. So not only are they adding new accounts, but the people who use PayPal -- and here's where I think their biggest growth driver is going to be -- are using it more and more for their everyday transactions. If every PayPal user uses, say, 30 transactions in their account this year, and 40 transactions next year, that's 33% growth without even adding any new members. That's a big opportunity. Everyone always wants to talk about the total payment volume growth and the new members they're adding. They added almost 10 million new active accounts in the quarter. That's nothing to bat your eyelashes at.
Venmo is the other thing I wanted to get to. Venmo is, in pretty much everyone's opinion, I think, is their big growth opportunity. 64% year over year growth in payment volume. That's insane. And they still have a ways to go. When you think of what Venmo is currently used for, mostly peer to peer payments. There's a few other ways you could use Venmo. But when you think of all the things that you could use Venmo for over the years... like I said with PayPal's main business, getting people to use their accounts more, is also a huge opportunity for Venmo. Not just getting new users and bringing old guys like me who don't use person to person payments into their ecosystem, which is definitely an opportunity. But, to drive business by getting people who already use Venmo to use it even more -- you have a real nice network effect going that we're seeing play out.
Moser: Absolutely. You put some numbers around that, we talk about the total payment volume, that's always a good indicator of how big the network is and the opportunity that exists there, it was $179 billion that flowed through the network over the quarter. Now, Venmo drove more than $27 billion of that. Like you said, that was up 64%. They ended the quarter with Venmo basically operating on a $400 million annual revenue run rate. So this is a business that is starting to become more meaningful to PayPal. To your point, they've captured a very important generation of spenders in younger spenders who have embraced that Venmo relationship, using it. You can see, as the years go on, it's going to be very reasonable to assume that they're going to be throwing a few more transactions in there on a yearly basis. So, yeah, without even growing the user base, you can still grow the engagement there by seeing some more transactions taking place. That's why it's so important for these relationships that PayPal continues to focus on. We saw, they've tied up with American Express now, where you can use PayPal and Venmo to actually split bills in partnership with American Express. You can actually use American Express points wherever PayPal and Venmo are accepted, in most places, at least, it sounds like. You're going to see, I think, more and more of those types of relationships in the future. PayPal and management are very good about saying, "Listen, we're not trying to disrupt and throw this whole system into chaos." They're trying to make it better. And along the way, they're forming partnerships with the most important players in the market there.
Then, a wild card. It's a little bit further out. But one thing to keep in mind is this GOPAY deal. PayPal has a 70% interest in GOPAY now in China. That's going to open them up to being able to accept payment processing and performing other services in China, which is going to be, obviously, a very big market. That is going to be a big tailwind. It'll play out probably a little bit further down the road. But want to keep in mind as well as you ask yourself, am I too late to this investment? I think we've probably made a pretty good case here that no, you're not too late. It's still got a lot of attractive qualities to it for folks looking to throw some shares into their portfolio.
Matt, let's talk about another company in this space that you are very familiar with in Green Dot. Now, you're out at the Money20/20 event in Las Vegas. You just wrapped up a meeting with some folks there at Green Dot. Talk a little bit about what went on in this meeting.
Frankel: Obviously, they can't address the stock price, as much as I'd like them to. Which is, I'm sure, what our listeners are all wondering. The stock tanked over the past year, we won't sugarcoat it.
Moser: Not the greatest year.
Frankel: But the company still definitely believes long-term in what it's doing. It's willing to deal with the short-term pain. The meeting I had was, there's two sides to Green Dot's business, which we've talked about before. There's the banking side. The unlimited cashback account is the new product that they released not that long ago. We had a CEO Steve Streit on the show talking about that. They have an earnings report coming up next week. They couldn't get into that side of the business too much. They said we'll find out more about it then.
But on the other side of the business is banking-as-a-service, where Green Dot was a pioneer in the space. Now, a bunch of other competitors are springing up. The executives I talked to were actually surprised that there was a banking-as-a-service panel at this conference that they weren't a part of. That tells you how big this is getting. I had a few questions for them about how that side's going.
First of all, banking-as-a-service or BaaS, he corrected me. You abbreviate it as BaaS. I made him tell me how to pronounce it so I wouldn't sound silly on here. If you're not familiar, Green Dot partners with some of the biggest names to create their banking infrastructure. Apple's one of them. If you use Apple Pay, their person to person payment platform is powered by Green Dot's infrastructure. Intuit, if you get your Turbo Tax refund on a debit card, that's a Green Dot banking-as-a-service product rather. Uber is a big partner, which I'll get to a little bit more in a second. Green Dot's big differentiator is, they're the one that can scale to these enterprise-level solutions. A lot of the other banking-as-a-service, they'll partner with smaller companies. But Green Dot's the only one who has any partners to the scale of like an Apple, Intuit, Uber, things like that.
They actually just announced not that long ago a partnership with Wealthfront that they're really excited about because it brings a whole new segment into their business. Green Dot's generally been a prepaid card company. They don't go after the affluent side of the market. This brings in that side of the consumer to their ecosystem, which is nice.
One other thing that's really interesting, we were talking about some of their big partners. If they're already partnered with, Apple, Uber, and Intuit, those are the three biggest companies in their respective industries, so a logical question is, where does it go from here? Interestingly, while I was speaking with them upstairs in the exhibit hall, Uber announced another new product that they're partnering with Green Dot on that integrates right into the Uber app for drivers and allows drivers to get paid in real time, immediately after every ride. That's really cool. With the gig economy coming up, I was talking to them a lot about this, that there's a ton of opportunity for companies like Uber, whose financial infrastructure hasn't evolved. It's still in the very early stages. They're calling this partnership Uber Money. I'm going to write something up about it for fool.com a little later, so keep your eyes peeled. But yeah, real time earnings after every drive. I'm an independent contractor, and I still have to wait a few days to get paid for things. That'd be really cool, if I could write an article and the money shows up in my bank account two seconds later, if anyone's listening who can make that happen. But, it's a really cool product, and this is a really great example of not only what Green Dot does, but how existing partnerships can be expanded into more and more new products as the whole employment landscape, the technology landscape, all these things are evolving.
They're really excited about that side of the business. They can't really about upcoming announcements, obviously, but they hinted that there's -- he definitely said that the pipeline of new partnerships has never been stronger. There's a whole lot more to come in this. And they're really confident that over the long term, they're doing things right, and we're all going to be very happy with it.
Moser: That's some great insight there. I do agree, the power of the partnerships. When you can plug into these big partners' networks, and Uber is clearly is a big one. A lot of people out there driving those cars around for Uber and for Lyft. A lot of opportunity there. To see Green Dot in there forging their path in that space is encouraging, to say the least. Given the tough years it's had, it's a good reminder, that doesn't mean it's a bad business. They've gone through a tough stretch, but things can certainly get better. It sounds like management has their eyes on some good value-creating relationships based on what you're saying.
Frankel: Definitely. Like you said, they partner with the biggest in the business. Uber's actually giving their keynote right now, which is why the press lounge is so quiet. Everybody's there, including Dan Kline, who I'm sure will have something to talk about later in the week on Industry Focus. When they announced their new partnership, Green Dot's PR guy immediately got a text and said, "OK, now we can talk about it." Right in the middle of the meeting. I said, "Oh, that's where Dan is." Dan is catching their announcement in real time, and will have a lot more insight on that. I'm kind of teasing his episode later in the week.
Moser: Alright, Matt, let's pick up where we left off on the last stock you bought, because the tweets keep coming in, the emails keep coming in. People love telling us the last stock they bought and why. We have a couple of emails this week.
First up, Aziz from Nova Scotia, Canada writes, "The last stock I bought is a small-cap called Simulations Plus, ticker SLP. They specialize in clinical trial simulation software that predicts how the human body will react to potential drugs based on their chemical structure. As far as I can tell, they're the only company doing what they do." Well, Aziz thanks so much for the email there letting us know. You know what? That actually sounds like a company I'd be interested in looking into a little bit more for my augmented reality service. Simulation software is huge, and there may just be something there for the augmented reality service. If that turns out to be something worth our time there in the service, I'll make sure to give you the credit for getting this thing on my radar.
Then we have one more email from Adam. Adam writes, "Hi, Industry Focus. The last stock I bought was Pinterest, ticker PINS. The reasoning can be summed up with three words and one stock comparison: monthly active users. The comparison: Twitter has roughly 330 million monthly active users and has been stagnating. Pinterest has 300 million and is growing. Pinterest is a superior advertising platform and its market cap is less than half of Twitter. I think Pinterest will continue monetizing its very strong user base and will close the valuation gap within the next two years. It also happens to be the case that Pinterest's share price has conveniently fallen on hard times, being lumped in with the rest of the 2019 IPO group. Thanks." Thank you, Adam! That was a great email! I like your case you're making there. Hey, the question I have with Twitter is, what's their second act? I don't disagree with you at all there. I think Pinterest has a very compelling advertising platform. I wonder if there's a world where one day, you see Pinterest and Twitter part of the same family? I don't know, I'm just positing the speculation. That could be something worth thinking about, at least.
Frankel: Your bold prediction for this month?
Moser: That's the bold prediction for the month, right. We're loving this last stock you bought and why, so keep the emails coming at firstname.lastname@example.org, or hit us up on Twitter @MFIndustryFocus. Let us know the last stock you bought and why.
OK, Matt, let's wrap the show up this week here with our One to Watch. What is the stock you'll be watching here for this coming week?
Frankel: This is an unfortunate One to Watch for me. It's Fitbit. I'm wearing one of them right now. The other two people I'm here at the conference here with are also wearing Fitbits. And they just announced today that Google is in talks to acquire Fitbit, which I thought would have happened a long time ago. I own the stock. I sold it not long ago because I was losing patience with it and wanted to deploy my money somewhere else. I thought the company wasn't doing a great job of unlocking value, if you will. Now that looks like they are. It's already up a little bit. I think it's about $5 a share now. If Google actually does wind up buying it, I think it will be first significantly more than that. This could let Google compete with Apple in the smartwatch space a whole lot more effectively than Fitbit can on its own. I'm watching this one closely. It could be, obviously, a positive for Fitbit shareholders, but for people who own Google as well. This is a big growth opportunity for them, with their resources.
Moser: Yeah, that was a good headline this morning. I'll be interested to see how that all shakes out there. I'm an Alphabet shareholder, I'm not a Fitbit shareholder. I can certainly see the benefits for Fitbit. Talk about plugging into big networks. Obviously, Alphabet's one of the biggest ones in the world. We'll keep an eye on that one.
I'm going to be watching MasterCard, ticker MA. They have earnings coming out Tuesday morning. Nothing specific to keep an eye on there. Again, when you go into companies like MasterCard and Visa, you're looking for more of the red flags, or the concerns, maybe. Matt, you'd mentioned something about Visa, a little ramp up there in spending. These businesses, they're very high-margin businesses. They make the money, they can do that, and it all makes sense for the longer haul. But still, keeping an eye on expenses there, looking at that cross-border opportunity that both Visa and MasterCard have been investing in. I will be looking to see if MasterCard has anything to say specifically about this new Apple Card, because MasterCard is working in conjunction with Goldman Sachs and Apple to make this Apple Card work. I'll be fascinated to see if they actually give us any data regarding the Apple Card, its use, card members, balance, whatever that may be. I just wonder if they'll give us some more information. But, Apple likes to control a lot of that data and keep some of it close to the vest. My expectations are tempered.
But hey, listen, Matt, I know you are very busy out there in Las Vegas. Appreciate you taking the time to join us today! We can count on next week, bringing you back in here for the show to talk about all of the other stuff you've done here over the course of the next couple of days for the conference, right?
Frankel: Definitely. In Vegas right now, this is just the beginning of the first day. Most of the big announcements and sessions are yet to come. I'm sure I'll have a lot to talk about.
Moser: Alright, we'll look forward to that! Have a great rest of the time after the conference with your wife out there unplugging! Let the babysitters take care of the kids. You and your wife enjoy a little quality time alone there!
Frankel: We will try!
Moser: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Today's show was produced by Austin Morgan. For Matt Frankel, I'm Jason Moser. Thanks for listening! And we'll see you next week!