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PayPal Beats Expectations Again — As It Has Every Quarter

In this Market Foolery segment, host Mac Greer is joined by David Kretzmann of Supernova and Rule Breakers, and Matt Argersinger of Million Dollar Portfolio, to talk PayPal (NASDAQ: PYPL). Pretty much all the numbers in last week's report showed stellar growth for the digital payment ecosystem, which is only becoming more pervasive. So what's next? Is a buyout in the cards?

A full transcript follows the video.

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This video was recorded on July 27, 2017.

Mac Greer: Guys, let's talk PayPal. Shares of PayPal up on better-than-expected earnings. Matt, PayPal has now beaten expectations every quarter since it was spun off from eBay back in 2015.

Matt Argersinger: Yeah. Me and Carl Icahn had a great idea a few years ago, when eBay and PayPal broke apart. I don't know if he was really the catalyst, but yeah, as a stand-alone public company, it's been outstanding. Revenue in the recent quarter up 18% to over $3 billion. But here's the number: They added 6.5 million new customer accounts. That's actually the fastest quarterly gain in over two years. So PayPal is a platform, like a lot of the platforms that we're seeing, that's actually seeing acceleration in adoption and growth. It's impressive. Payment transactions grew to $1.8 billion. That's a 23% gain. Total payment volume, $106 billion. First time it's crossed the $100 billion mark, that's the number of dollars flowing across PayPal's platform. That's incredible. That's up 23% as well. Venmo, the social payments platform, Facebook might have a lot to do with this -- $8 billion and transactions last quarter. That's up over 100% over the prior-year quarter.

This is really, now, PayPal is not just an easy way for anyone to pay someone online, pay a shop or a merchant online with a phone. This is a full-fledged digital payments ecosystem in so many ways. I think the network effect now is so strong, and the partnerships they've made with credit card companies, they actually just did a partnership with Baidu in China for their digital wallet as well. It's really getting everywhere, becoming more and more popular. So I almost think, it's a $70 billion company now -- I don't know if I see it as a stand-alone company much longer, to be honest with you. I actually think, and I said this over a year ago, I think Facebook should have bought PayPal. But I think this is a company, if you're Facebook or Amazon or Apple, it's not a big price to pay. Even if you're a J.P. Morgan or a MasterCard, this is a company that might want to be in your crosshairs. It wouldn't be too difficult to do an acquisition, even at today's market cap.

David Kretzmann: I haven't looked at PayPal as closely as you, Matt. But one thing I've always wondered is, if I have a PayPal account, but the main item I use to make payments is a Visa card, does PayPal actually get a cut of the transaction from Visa? Or are they basically saying, "We'll let Visa roll in here; we just want to be the platform."

Argersinger: It depends. I think there are situations where, yes, they do get a small cut. It just depends on the partnership agreement they specifically have with the credit card company. I don't know exactly. In a lot of cases, it's a matter of just, we want more people using PayPal, because that means they're probably using other services on PayPal, and we're fine with them using MasterCard or Visa. But in a lot of cases, no. If you're going directly through PayPal but you have a credit card stored, both parties are taking a cut of that transaction.

David Kretzmann owns shares of Amazon, Baidu, Facebook, and MasterCard. Mac Greer owns shares of Amazon, Apple, and Facebook. Matthew Argersinger owns shares of Amazon, Apple, and Baidu. Matthew Argersinger has the following options: short December 2017 $800 puts on Amazon. The Motley Fool owns shares of and recommends Amazon, Apple, Baidu, eBay, Facebook, MasterCard, PayPal Holdings, and Visa. The Motley Fool has a disclosure policy.