PayPal Sales Miss Estimates for the First Time Since 2015

(Bloomberg) -- Wall Street’s expectations for PayPal Holdings Inc. last quarter proved a little too optimistic. The company’s sales failed to meet analyst estimates, a rare miss after years of strong growth.

Revenue in the fourth quarter rose 13 percent to $4.23 billion. Analysts had projected $4.24 billion on average, marking the first time PayPal failed to exceed estimates in more than three years.

The San Jose, California-based company reported adjusted earnings per share of 69 cents for the last three months of the year. The average analyst estimate was 67 cents. PayPal maintained its outlook for 2019. It forecasts adjusted earnings per share of $2.84 to $2.91 and revenue growth of at least 16 percent.

Shares of the company were at an all-time high last week ahead of the quarterly report. At the close of trading Wednesday, PayPal was up 10 percent from the start of the year, with four-fifths of analysts who cover the stock rating it as a buy. Shares fell as much as 5.6 percent in extended trading on Wednesday following the earnings report.

Investors were “very bullish” at the start of the current quarter, Harshita Rawat, an analyst at Bernstein, wrote in a note to clients. She cited growth in the e-commerce market, optimism for Venmo and minimal exposure to China among the reasons Wall Street was positive on the stock.

Last year, PayPal began providing more details on Venmo. The mobile-payments service is a major source of user growth, though not a source of earnings, for the company. PayPal Chief Executive Officer Dan Schulman said on a conference call after the earnings report Wednesday that the company is targeting a total of more than 300 million active accounts across all products by the end of the year.

One attempt to wring profit from the Venmo business is through a “Pay With Venmo” button used by Uber and other apps. PayPal collects transaction fees, which are especially lucrative when customers use their cash balance in Venmo instead of a credit card. Schulman said 29 percent of Venmo users have utilized the app in a way that generates revenue for the company, up from 24 percent in the previous quarter. “We have a line of sight to Venmo profitability now,” Schulman said in a phone interview.

However, PayPal expects Venmo will remain unprofitable, at least through the first half of the year, according to John Rainey, the chief financial officer. Transactions on Venmo totaled $19 billion in the quarter, an increase of 80 percent from the same period a year ago. Across all services, PayPal handled $164 billion in payment volume in the fourth quarter, an increase of 23 percent.

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

To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Anne VanderMey

©2019 Bloomberg L.P.