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PayPal Raised Its Outlook. Here's What You Need to Know

By Jennifer Saibil - May 12, 2021 at 7:15AM

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First-quarter earnings beat expectations. The world is going digital, and PayPal is powering payments and more.

It's been a very good 12 months for PayPal Holdings (PYPL 0.02%). The digital payments company had a record 2020 thanks, in part, to the coronavirus pandemic and the increased need for people to stay home and rely more on digital shopping and payments. The financial technology, or fintech, company expected the high growth rate to continue into 2021, and when sales and earnings for the first quarter of fiscal year 2021 beat expectations, PayPal raised its outlook.

A better-than-expected first quarter

First-quarter revenue for PayPal increased 29% year over year on a currency-neutral basis, and total payment volume (TPV) increased 46%. Earnings per share (EPS) increased from $0.07 to $0.92, and the company added more than 14 million net new active accounts, for a total of 392 million.

In its previous earnings report, PayPal had guided for TPV to rise by percentages in the high 20s and revenue to grow 19% in fiscal 2021. For the fiscal year, management projected an EPS of $3.20 and 50 million new active accounts. Management has now raised that forecast to a 30% increase in TPV and a 20% increase in revenue, $3.33 in EPS, and 52 to 55 million new active accounts.

A man sitting on a couch with a computer and a credit card.

Image source: Getty Images.

Some of the Q1 numbers to note are cross-border trade, which increased 51% year over year, and peer-to-peer payments, which grew 50% to $84 billion and represented 29% of TPV. PayPal doesn't usually break out this number, which includes PayPal and Venmo, but its strong performance is definitely worth mentioning. The company added new features to Venmo over the past 12 months, such as a Venmo credit card and cryptocurrency trading, and customers ramped up usage. Venmo TPV grew 63% to $51 billion.

If the sales and TPV growth aren't enough of an indication of PayPal's strength, PayPal completes 34% more checkouts based on sales data, PayPal shoppers spend 12% more, and users shop 11% more frequently when PayPal is a payment option.

Is risk decreasing?

A big risk for many companies that performed well during the pandemic is not being able to repeat the performance in 2021. Stay-at-home tailwinds sparked high sales increases for many digitally based companies, which are expected to peter out to some degree as vaccines get rolled out and brick-and-mortar stores reopen. 

So far, PayPal is still enjoying unusually high growth. Some of that is due to the latest round of stimulus that was still being distributed in the first quarter, and some part is coming from an economic recovery. But as people continue to use digital payment options, and as those options expand and become more available, PayPal is reaping the benefits.  

CEO Dan Schulman explained in the Q1 conference call, "We believe that the shift in consumer digital behavior will remain essentially unchanged in a post-COVID[-19] world." That's significant.

Where the opportunity is

PayPal has always been the leader in digital payments, but it's now scaling its business to get into any and all areas it can, with a focus on combining digital and physical. Management recognizes the opportunities there, which PayPal has been anticipating as it's developed its robust digital payment system.

Schulman said that the company will "accelerate our customers' digital engagement through the rapid innovation of our digital wallet and merchant commerce platform." As the leader in this field, PayPal has the tools to build on the momentum. For example, it recently acquired digital security company Curv to expand its initiatives to support cryptocurrencies and digital assets.

Individual accounts through PayPal and Venmo are key to future growth, as customers continue to use digital payment options in many forms as well as consolidate financial services into digital accounts. This includes shopping, bill paying, stock and cryptocurrency trading, and standard banking. PayPal is unlocking value through offering these services, and even if it won't take the step of offering actual bank accounts -- which other fintechs such as Affirm Holdings already do -- the ability to link accounts connects PayPal to the full suite of financial services.

More value for shareholders

PayPal stock price has gained roughly 76% over the past year, but it is only up about 6% in 2021. It's understandable that the hype is slowing down after an amazing 2020, but over the long term, PayPal stock is a great bet for future growth.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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