PayPal Forecasts Stronger 2nd Quarter as Life Moves Online

(Bloomberg) -- PayPal Holdings Inc. said it’s seeing a significant improvement in the current quarter following a slowdown in the first as more people are forced to conduct business online while sheltering in place.

After the first week in March, when social distancing became the norm, PayPal “saw a substantial revenue decline predominately in travel and transportation verticals,” Chief Executive Officer Dan Schulman said in a conference call with analysts. Partners including Uber Technologies Inc., Airbnb Inc. and Live Nation Entertainment Inc. saw rapid decreases in transaction volumes.

But PayPal said its numbers in April are much better. Revenue increased about 17% in April and total payment volume rose 22%, excluding currency effects, as the company added 7.4 million new accounts. On May 1, the company had its largest day of transactions in its history.

“The world has kind of moved from physical to digital, and digital payments have gone from a nice to have capability to a must-have service,” Schulman said in an interview. “That’s the story that came out of April.”

PayPal withdrew its full-year revenue and earnings forecasts and reported sales in the first quarter that missed analysts’ estimates as the “deteriorating environment resulting from Covid-19 impacted business.” Revenue rose 12% to $4.62 billion in the three months ending March 31, compared with the $4.72 billion analysts estimated.

Adjusted earnings per share were 66 cents, including a negative impact of 17 cents a share because the company was forced to increase its credit loss reserves as a result of “revised macroeconomic projections,” PayPal said in a statement Tuesday. Transaction and credit losses, which account for charge-backs and bad loans, were $591 million in the period ended March 31, versus $341 million in the first quarter of 2019.

Total payment volumes for the quarter ending March 31 rose 19% from a year earlier to $191 billion, But that was less than analysts’ average projection of $193.2 billion.

The shares fell initially after the report, but gained as Schulman painted a more optimistic view of the current quarter on the call. The stock rose 6.9% in extended trading after closing at $128.31 in New York.

PayPal said it sees sales growth of about 13% in the current period and an increase of as much 20% in adjusted earnings per share. Wall Street had been forecasting a revenue increase of 7% and a 2% bump in profit, according to data compiled by Bloomberg.

Bloomberg Intelligence analyst Julie Chariell said March was a killer for PayPal, but noted “April activity has turned around and volume growth is approaching January-February levels. On a relative basis, PayPal is delivering anticipated outperformance given greater use and adoption of e-commerce.”

Schulman said he expects the company to add 15 million to 20 million new active accounts in the second quarter.

In addition to processing peer-to-peer and commercial business transactions, since April 10, PayPal has been participating in the federal Paycheck Protection Program to provide emergency loans to small businesses impacted by the coronavirus. PayPal has funded tens of thousands of PPP loans, with an average loan size of $35,000, Schulman said.

The company is also enabling customers to receive Treasury stimulus payments through PayPal and Venmo, PayPal’s peer-to-peer payments platform. Venmo saw $31 billion in transactions in the first quarter, up 48% from a year earlier.

The San Jose, California-based company added 20.2 million new accounts in the first quarter, which includes 10 million users from Honey Science, an online coupon company that PayPal officially acquired in January for $4 billion. That brings total active accounts to 325 million, up from 277 million a year earlier.

©2020 Bloomberg L.P.