PayPal Partnership Deals Deliver Growth

PayPal CEO Dan Schulman is getting investors to embrace his strategy of converting the online payments platform into a digital wallet, even if it requires deal-making that may diminish profit margins, according to Bloomberg.

The company reported first-quarter results that showed Schulman’s strategy is working and raised its annual forecast. Sales and profit topped analysts’ projections as PayPal added 6 million active customer accounts and increased the number of transactions per account by 12 percent.

A network effect is taking hold, Schulman said in an interview. As PayPal adds new users, it becomes more attractive to merchants, and as more retailers accept PayPal transactions, it drives greater engagement with consumers. The new account additions in the quarter represented PayPal’s biggest organic gain in three years. “More people are using PayPal more frequently,“ he said.

Schulman wants PayPal customers to use their smartphones to pay for goods in physical stores, not just websites. He has been cutting deals with credit card issuers, banks and even Alphabet to increase the places where PayPal is accepted, which has spurred more people to create accounts and existing customers to use PayPal more often, according to the quarterly earnings report. In exchange for greater access to physical stores from credit card issuers, PayPal agreed to stop pushing customers to make payments from bank accounts that have lower fees.

Profit in the current quarter will be 41 cents to 43 cents on revenue of $3.05 billion to $3.1 billion, San Jose, PayPal said in a statement. Analysts projected 42 cents on sales of $3.07 billion. The company also raised its annual forecast for adjusted earnings per share of $1.74 to $1.79, on revenue of $12.52 billion to $12.72 billion. The previous projections were for profit of as much as $1.74 a share, on revenue of as much as $12.65 billion. PayPal also announced a $5 billion stock buyback program authorized to begin when the company completes its existing repurchase program.

PayPal reported first-quarter adjusted earnings of 44 cents per share on revenue of $2.98 billion. Analysts on average estimated profit of 41 cents on revenue of $2.94 billion. Total payment volume increased 23 percent in the quarter to $99.3 billion. Active customer accounts were 203 million in the first quarter, up from 197 million in the fourth quarter. Transactions per active account increased 12 percent to 32 in the trailing 12 months.