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PayPal's Second Quarter Earnings: What Investors Need to Know

By Matthew Frankel, CFP® – Aug 13, 2021 at 7:37AM

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The fintech giant keeps growing. Here's where it stands now and what investors should expect.

Fintech giant PayPal (PYPL 0.97%) is a massive operation with more than $1 trillion of annual payment volume flowing through its platform. The company recently reported strong second-quarter earnings, but the stock price action indicates that investors weren't terribly impressed. In this Motley Fool Live video clip, recorded on Aug. 2, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the key figures and takeaways investors need to know. 

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Jason Moser: Today let's talk about PayPal, because PayPal earnings came out late last week. It was a fairly muted reaction from the market stock, was down a little bit. The stock has obviously done tremendously here over the past several years. It seemed to all-in-all like it was a strong quarter, shocker. It seems every quarter they just continue to announce these just tremendous numbers and this gross payment volume that is now on a run rate of over $1 trillion. Matt, looking through this PayPal release, what stood out to you in the quarter?

Matt Frankel: Nothing. I guess that's what really you were pointing to there. Nothing was really that surprising. They reached the key milestone where they have over 400 million active users, which is a crazy accomplishment. Don't get me wrong. I think Square (SQ 7.99%) just announced Cash App has 40 million and that's a big deal.

Moser: Wow.

Frankel: PayPal has 10 times the amount of Square does. That was definitely a big deal. They raised their guidance slightly for payment volume throughout the year. I think a lot of that has to do with consumer spending really coming back a lot quicker than people thought it would. But we already knew that. We've talked about that over the past few weeks. Remember, Bank of America (BAC 1.99%) reported that consumer spending is up 22% year-over-year, something to that effect, and we're seeing that reflected in some of these payment processes. I got to say PayPal's starting to get into the category of Visa (V 2.99%) and Mastercard (MA 3.41%) now with its size.

Moser: Well, it's better than $300 billion market cap now, so you're really not far off.

Frankel: Just the sheer size of the businesses and just the ecosystem they've built. They've just set the barrier to entry so high, I don't know if anyone is going to be able to compete with PayPal really for any of the online payment processing business. You said now they're over $1.2 trillion in annualized revenue or having an annualized payment volume that is.

Moser: Yeah.

Frankel: That's a staggering number.

Moser: It is a lot. Now to your point earlier, over 400 million active accounts now and I mean that obviously a massive goal, massive accomplishment there, and really those are 400 million. There are a lot of folks that are using this platform on a regular basis. They even raised guidance for the net new additions they're calling for 52-55 additional here in fiscal 2021, and obviously Venmo is a big part of this. I don't know if you were able to look at those Venmo numbers, but it was pretty impressive just to see with that one network alone pushing through $58 billion in total payment volume for the quarter, over 76 million active accounts now and just to your point about Square and it's not to take anything away from Square and Cash App. But the Venmo numbers, I think it at least puts that into perspective for all that Square has done so well, you look at really what PayPal has done and it's really pretty amazing.

Frankel: I have to announce. I finally joined Venmo during this quarter, so I was one of the new adds.

Moser: Did you have to get some money to one of your kids or something? What forced your hand?

Frankel: We recently bought a vacation rental, so I got it so people could pay us when they stay there and stuff like that.

Moser: Yeah. Good idea

Frankel: They process, I think $58 billion in payment volume during the quarter. That's more than Square did in the merchant side of its business. That was 58 percent growth year-over-year. Venmo's still growing very rapidly.

Moser: It is.

Frankel: If you remember, that's the side of the business they haven't really figured out how to monetize great yet. Most of their revenue still comes from PayPal, not Venmo. As Venmo scales, the ability to monetize, that's going to get greater and greater. The importance of monetizing, that's going to get greater and greater. That's what I'm going to be watching going forward is how well they are monetizing Venmo. It's not just about building up the users. They can build it up to 1 billion users. If you can't monetize them, then I'm not that excited.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Matthew Frankel, CFP owns shares of Bank of America and Square. The Motley Fool owns shares of and recommends Mastercard, PayPal Holdings, Square, and Visa. 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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Stocks Mentioned

PayPal Holdings Stock Quote
PayPal Holdings
$78.40 (0.97%) $0.76
Bank of America Stock Quote
Bank of America
$37.73 (1.99%) $0.73
Mastercard Stock Quote
$354.83 (3.41%) $11.70
Visa Stock Quote
$215.31 (2.99%) $6.25
Block Stock Quote
$67.07 (7.99%) $4.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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