PayPal Holdings(NASDAQ:PYPL) apparently discovered how to build a "hyperdrive" last year as the company reported outstanding, accelerated results for its fourth quarter and full-year 2015. The schematic for this business engine includes the component pieces of revenue growth, colossal payment volume, warp-speed Cyber Monday transactions, and expanded customer engagement solutions.
If management could speak to you directly, these are five things they would want you to know:
1. 2015 was a banner year
PayPal experienced explosive earnings growth in 2015 with an increase of 192% to $1.00 per share. This outperformance can be tied directly back to revenue, which grew 15% to $9.2 billion on the back of 11.2% growth in active users for the year. For the fourth quarter alone, revenue grew 17% as the company added 6.6 million active user accounts, the largest quarterly addition in the company's 17 year history. At year end, the total number of active user accounts stood at 179 million.
This uptick in users was driven by PayPal's expansion into mobile apps like Venmo and its enhanced customer engagement acquisitions such as Xoom. Revenue growth fed to the bottom line as the company maintained a flat operating margin of 16% for the year.
2. An appetite for market share
PayPal is the Pac-Man of payments as the company processed 4.9 billion payment transactions for a total of $282 billion in payment volume last year, an increase of 27% over 2014. It was estimated that PayPal handled approximately 78% of all digital transactions in November 2014, while competing services from larger competitors including Google Wallet and Apple Pay handled less than 5% each.
On a global basis, PayPal captured $66 billion of the $450 billion total mobile payments made in 2015, or 14.7%.
3. Payments at the speed of sound
PayPal processed 450 payments per second on Cyber Monday last year. This equates to 27,000 transactions per minute, 1.6 million per hour, and 38.9 million per day. Given the company's average 2015 revenue of $1.88 per transaction, this equates to just over $73 million of revenue generated in a single day. Think of it this way: If payments were miles, then PayPal circled the earth 1,561 times on Cyber Monday.
This feat is an additional reminder that consumers are migrating away from traditional in-store purchases and electing to purchase online instead, especially during the holiday season. More shoppers made purchases online than stepped into physical stores on Black Friday -- this e-commerce growth is a major tailwind for PayPal that will continue to gain momentum as consumers shift their spending.
4. A Commitment to returning capital to shareholders
Warren Buffett has always told us that share repurchases are a value adding proposition as they ultimately increase earnings for the remaining shareholders, all else being equal. PayPal is effectuating this scenario as the payment processor announced in its earnings call a new share repurchase program of up to $2 billion for 2016. Using the most recent closing price at the time of this writing, this buyback authorization represents approximately 4.4% of the company's total shares outstanding. Some back of the envelope calculations reveal that if PayPal can at least match its 2015 earnings of $1.00 per share, then shareholders will realize an approximate 5% increase in earnings for 2016 just from the reduced share count.
This buyback program is facilitated in part by the company's substantial free cash flow generation which amounted to $1.8 billion in 2015.
5. An eye toward an engaged and mobile future
PayPal's 2015 growth was predicated on customer engagement enhancements and platform expansion into social media and mobile spaces, which included the development of the mobile app Venmo and the acquisition of payment remitter Xoom.
Venmo users can make in-app purchases of food deliveries or even sports and concert tickets through third-party merchants such as Munchery and Gametime. PayPal officially acquired Venmo in 2013 with its purchase of Braintree but did not allow vendors to accept payments through the app until October of 2015. As a result, Venmo processed a total of $2.5 billion in total payment volume for the fourth quarter of 2015, a 174% year-over-year increase.
Venmo is part of much larger strategic landscape for PayPal: mobile. At $66 billion, mobile payments increased 44% for PayPal in 2015 and represented 28% of the company's total payment volume. As part of its efforts to solidify and grow its position in mobile payment, PayPal completed its acquisition of Xoom in 2015.
Xoom, is a global remittance processor that allows customers in the United States to send money to and pay the bills of friends and family in 41 different countries. According to PayPal CEO Daniel Schulman, the company projects that Xoom will be a huge person-to-person growth opportunity for PayPal.
Additionally, in describing how the company measures its engagement with customers, Schulman indicated that PayPal uses the number of transactions per active account as a metric. In the fourth quarter for 2015, this number reached 27 compared to 25 for the same period last year. Although this increase appears negligible at first, based on the company's end-of-year active user count of 179 million, this equates to 358 million transactions or just over $673 million in additional revenue.
PayPal has entered 2016 with significant momentum, powered by outstanding earnings, revenue, and active user growth. The company wisely invested in new opportunities through the acquisition and development of apps that allow for further expansion into mobile payments and increased engagement with customers. Looking forward, the company is well-positioned to reap long-term rewards.