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PayPal's Best. Year. Ever. Here's Why

By Danny Vena - Feb 12, 2021 at 4:00PM

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The digital payments pioneer closes out a robust year on a high note.

2020 was a breakout year for PayPal Holdings (PYPL 5.24%). The company became the digital payment processor of choice for many consumers during the pandemic, with the stock more than doubling over the course of the year and seizing new all-time highs. The trend continued into the fourth quarter, helping PayPal achieve the best yearly performance in the company's history.

On this clip from Motley Fool Live, recorded on Feb. 4, "The Wrap" host Jason Hall and Fool.com contributor Danny Vena discuss the results and what it means for PayPal going forward.

Jason Hall: You touched on it very briefly yesterday when PayPal's earnings dropped in the middle of our show. You spent a couple minutes talking about it, but we wanted to do a little bit deeper dive. You spent some time earlier today putting it together, and it's a huge quarter, tell us what happened.

Danny Vena: The thing that stuck out for me was the fact that this was a continuation of two previous quarters that we saw and in each one, PayPal's management said the same thing: This was the best quarter in the company's history. So now they've had that three successive times.

I want to read a little quote from the conference call. Dan Schulman, president and CEO, said, "I'm pleased to report that PayPal just completed the strongest year in our history, achieving record growth in net new active customers, [total payment] volume, revenue, operating income, earnings, and free cash flow."

Hall: That's crazy! [laughter]

Vena: You're seeing a little bit of something there, I don't know what it is. I'll go a little bit over the numbers.

In the fourth quarter, like I said, this was a record year for PayPal in many ways, marking the strongest performance in PayPal's history.

For the fourth quarter, net revenue was $6.1 billion, first time over the $6 billion mark, up 23% year over year, beating not only management's forecasts, but analyst's expectations. Adjusted earnings per share of $1.08. Expectations were $1, that was up 29%. Its GAAP earnings per share actually tripled to $1.32.

Now, I wanted to stop on that for just a minute because the biggest difference between PayPal's adjusted earnings per share and its GAAP earnings per share is the company's strategic investments.

Now, it does have a number of investments in smaller start-ups, but one of the biggest needle movers for PayPal in its investments is that of MercadoLibre (MELI 5.84%). The company spent about $750 million investing in MercadoLibre back in March of 2019. Since then, MercadoLibre shares are up roughly 300%.

That's obviously going to move the needle. It's not included in their adjusted earnings per share. It's not part of the operating income the way the market views it.

Still, that was a very smart move on PayPal's part, and also a reminder to investors that just because a stock has gone up gangbusters, don't look at how far the stock has moved, look at the opportunity in front of it, because here's a stock that just over a couple of years has gained significantly.

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Stocks Mentioned

PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
PYPL
$77.68 (5.24%) $3.87
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
MELI
$739.46 (5.84%) $40.82

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