PayPal Forecast Disappoints as Acquisitions Weigh on Profit

(Bloomberg) -- PayPal Holdings Inc. gave an earnings forecast for the current quarter that missed analysts’ estimates as a string of acquisitions and partnerships weighs on profit.

For the first quarter, PayPal said it expects adjusted earnings per share of 76 cents to 78 cents, lower than the 82 cents analysts had estimated on average. The recent acquisition of Honey Science, PayPal’s largest ever, will dampen earnings this year but is expected to contribute profit next year, John Rainey, the chief financial officer, said on a conference call after the report.

Payment volume across all PayPal businesses grew 22% in the fourth quarter, reaching $199 billion, but that was less than the $203 billion analysts’ were looking for. The shares tumbled about 3% in extended trading after the report.

Chief Executive Officer Dan Schulman has been pushing PayPal into new partnerships with banks, technology giants and e-commerce platforms as he seeks to make it a versatile financial tool rather than just a payment method for websites. In November, PayPal spent about $4 billion to buy the coupon shopping app Honey, gaining access to valuable data on consumer buying habits. About 17 million people use Honey apps or web browser extensions to find discounts at online shopping sites.

Last year PayPal also took a majority stake in China’s GoPay, and in December, it announced an agreement with Latin America’s MercadoLibre to offer payments in Brazil and Mexico. Earlier this month, PayPal announced an expansion of its partnership with UnionPay, which could boost its presence in China’s massive payments system.

Those efforts may take longer to pay off than Wall Street was anticipating, but the company was optimistic that they will come through this year.

PayPal said it expects revenue to grow by 18% to 19% this year, more than the 17% pace growth the San Jose, California-based company predicted during its last earnings report in October.

The company also added 9.3 million new accounts in the fourth quarter, which includes both consumers and merchants, bringing total active accounts to 305 million, up from 267 million the same time last year.

Venmo transactions were slightly more than $29 billion in the fourth quarter, up from just under 19 billion a year earlier. There are now 52 million active users on its popular peer-to-peer payment platform up from 40 million last spring. PayPal has been trying to increase revenue through a new sponsored feature in Uber and other apps, as well as a new credit card expected to debut later this year.

For the fourth quarter, PayPal reported adjusted earnings per share of 86 cents, beating analysts’ average projections of 83 cents. Revenue in the three months ended Dec. 31 was $4.96 billion, the company said, compared with the $4.94 billion analysts estimated.

To contact the reporter on this story: Julie Verhage in New York at jverhage2@bloomberg.net

To contact the editors responsible for this story: Molly Schuetz at mschuetz9@bloomberg.net, Alistair Barr

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