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PayPal Reports Strong Second Quarter Results and Raises Revenue Outlook

SAN JOSE, Calif.--(BUSINESS WIRE)--Global technology platform and payments leaderPayPal Holdings, Inc. (Nasdaq:PYPL) today announced results for the second quarter ended June 30, 2016. For the quarter, PayPal gained market share, expanded its customer base, deepened engagement with customers and delivered on its financial commitments. The company also announced a long-term partnership agreement with Visa.

“Reconciliation of GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate”

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Financial highlights for the second quarter include:

  • Revenue growth of 15% to $2.650 billion, or 19% on a foreign currency neutral (FX-neutral) basis
  • Revenue growth on a non-GAAP pro forma basis of 16%, or 19% on a non-GAAP pro forma FX-neutral basis
  • GAAP operating margin of 14% with non-GAAP operating margin of 20%
  • GAAP earnings per diluted share (EPS) growth of 7% to $0.27, non-GAAP EPS growth of 11% on a pro forma basis to $0.36
  • Operating cash flow of $696 million, free cash flow of $495 million
  • Returned $300 million to stockholders, repurchasing 8 million shares of common stock

Operating highlights for the second quarter include:

  • Active customer accounts of 188 million, up 11%
  • 1.4 billion transactions processed, up 25%
  • 29 payment transactions per active account on a trailing twelve-month basis, up 13%
  • $86 billion in total payment volume (TPV), up 28% on a spot basis, and 29% on an FX-neutral basis

“We have a clear mission at PayPal. We want to democratize financial services and become an everyday, essential service for underserved consumers," said Dan Schulman, President and CEO of PayPal. "We want to use our platform and services to enable merchants to fully capitalize on the move to mobile and digital commerce. Our strong financial performance is one sign of the tangible and consistent progress we've made towards achieving these goals. Our agreement with Visa enhances our capabilities, offers the potential to establish new contexts for our consumers and merchants, and lays the foundation for additional partnerships.”

PayPal and Visa Enter Partnership to Extend Customer Choice

PayPal and Visa announced a strategic partnership to expand their long-standing relationship that will result in an improved and more seamless shopping experience and greater choice in how consumers pay. This agreement is a significant step towards offering greater customer choice and flexibility for PayPal's customers.

PayPal will also gain access to Visa’s tokenization services, starting in the United States, for in-store PayPal transactions. This will expand acceptance for PayPal’s digital wallet to all physical retail locations where Visa contactless transactions are enabled. The partnership’s benefits will include greater accessibility and volumes for Visa payment instruments in the PayPal digital wallet.

PayPal also will ensure that data provided to issuers and their cardholders for Visa-funded transactions will be consistent with the information that each receives with a traditional Visa card transaction, providing greater transparency and enhancing payment system security.

The agreement affords PayPal certain economic incentives, including incentives for increased Visa volume, and greater long-term certainty on fees paid to Visa, and further removes the threat of any fees or Visa network rules being targeted solely at PayPal.

Gaining Market Share and New Merchant Customers

In the second quarter, PayPal gained market share and extended its leadership position. PayPal processed $86 billion in TPV, representing FX-neutral growth of 29%, which was substantially faster than the growth rate of e-commerce. Merchant services TPV grew 36% on an FX-neutral basis, and represented 83% of overall TPV for the quarter. PayPal processed $24 billion in mobile payment volume, up 56%, representing 28% of TPV for the quarter. Venmo, the company’s social payments platform, processed $3.9 billion of TPV, up 141%.

PayPal added notable new merchants to the platform, ending the quarter with 14.5 million active merchant accounts. The list of leading brands choosing PayPal now includes IKEA in multiple countries, Carnival Corporation, VKontakte, Talbot's, Cathay Pacific and Eventbrite.

Extending PayPal’s Customer Base and Deepening Engagement

As PayPal continues to grow larger and more relevant in customers' daily lives, the company demonstrated another strong quarter of customer acquisition, adding new consumers and merchants to the platform. The company grew its active account base by 11% in the second quarter, ending the quarter with 188 million active customer accounts.

Customers are engaged at higher levels than ever before. In the second quarter, the company processed 1.4 billion payment transactions, which translates to 29 payment transactions per active account, an increase from 26 transactions per active account in the same period last year.

Expanding Innovative Products

One Touch is the most rapidly adopted product in PayPal’s history. As of the end of the second quarter, more than 25 million consumer accounts have opted in to One Touch and more than two million merchants accounts have enabled the product.

PayPal also extended the Pay with Venmo pilot in the quarter to additional merchants including Parking Panda, Priv, Wish, Boxed, Hop Market and Poshmark. PayPal expects to expand the Venmo pilot to all of its Venmo users, and substantially more merchants later this year.

PayPal Working Capital continues to be an important product to engage merchants and support their growth. In the second quarter, PayPal Working Capital exceeded $2 billion in originations since the product launched in September 2013 and has now funded more than 90,000 small business merchants in the United States, United Kingdom and Australia.

Broadening PayPal's Global Reach

Xoom’s U.S. customers can now send money to 53 countries. Xoom continues to redefine global remittances through mobile technology, with 74% of transactions being made on a mobile device in the second quarter.

In the second quarter, PayPal also expanded the European rollout of the Vodafone wallet. Consumers in Spain and Italy can now tap and pay in stores, another example of how PayPal is committed to partnership and delivering consumer choice.

Second Quarter 2016 Financial Highlights

Second Quarter

(presented in millions, except per share data and percentages)

FX-Neutral YoY

2016

2015

YoY Growth

Growth

Total Payment Volume (TPV) $86,208 $67,482 $18,726 28% 29%
GAAP
Net revenues $2,650 $2,297 $353 15% 19%
Net income $323 $305 $18 6% N/A
Earnings per diluted share $0.27 $0.25 $0.02 7% N/A
Non-GAAP Pro Forma
Net revenues $2,650 $2,293 $357 16% 19%
Net income $436 $395 $41 10% N/A
Earnings per diluted share $0.36 $0.32 $0.04 11% N/A

Other Selected Financial and Operational Results

Operating Margin - GAAP operating margin for the second quarter of 2016 decreased to 14.0%, compared to 17.3% for the same period last year. Non-GAAP operating margin decreased to 19.9%, compared to non-GAAP pro forma operating margin of 22.0% for the same period last year.

Taxes - The GAAP effective tax rate for the second quarter of 2016 was 15.0%, compared to 23.6% for the second quarter of 2015. The non-GAAP effective tax rate was 18.8%, compared to the non-GAAP pro forma effective tax rate of 21.9% for the second quarter of 2015.

Cash Flow - PayPal generated $696 million of operating cash flow and $495 million of free cash flow during the second quarter of 2016.

Cash, Cash Equivalents and Investments - PayPal’s cash, cash equivalents and investments totaled $6.2 billion at June 30, 2016.

2016 Financial Guidance

Full Year 2016

  • PayPal raises full year 2016 revenue guidance to a range of $10.750 to $10.850 billion.
  • PayPal expects revenue to grow 16% - 17% at current spot rates and 19% - 20% on an FX-neutral basis.
  • PayPal expects GAAP earnings per diluted share in the range of $1.11 - $1.14 and non-GAAP earnings per diluted share in the range of $1.47 - $1.50.
  • Estimated non-GAAP amounts above for the twelve months ending December 31, 2016, reflect adjustments of approximately $585 - $615 million, primarily including the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets.

Third Quarter 2016

  • PayPal expects revenue to grow 16% - 18% at current spot rates and 19% - 21% on an FX-neutral basis, to a range of $2.620 to $2.670 billion.
  • PayPal expects GAAP earnings per diluted share in the range of $0.25 - $0.27 and non-GAAP earnings per diluted share in the range of $0.33 - $0.35.
  • Estimated non-GAAP amounts above for the three months ending September 30, 2016, reflect adjustments of approximately $140 - $160 million, primarily including the following items: stock-based compensation expense, employer payroll taxes on stock-based compensation, and amortization of acquired intangible assets.

Guidance for full year 2016 revenue growth rates represent year-over-year comparisons versus non-GAAP pro forma measures. Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of Financial Performance" for important additional information.

Quarterly Conference Call and Webcast

PayPal Holdings, Inc. will host a conference call to discuss second quarter 2016 results at 3:30 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP and non-GAAP pro forma measures to their most directly comparable GAAP measures, can be accessed through the company's Investor Relations website at https://investor.paypal-corp.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

PayPal Holdings, Inc. uses its Investor Relations website (https://investor.paypal-corp.com), its PayPal Stories Blog (https://www.paypal.com/stories/us), Twitter handle (@PayPal), LinkedIn page (https://www.linkedin.com/company/paypal), Facebook page (https://www.facebook.com/PayPalUSA/) and YouTube channel (https://www.youtube.com/paypal) as a means of disclosing information about the company and for complying with its disclosure obligations under Regulation FD. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels in addition to PayPal’s press releases, SEC filings, public conference calls and webcasts.

About PayPal

At PayPal (Nasdaq:PYPL), we put people at the center of everything we do. Founded in 1998, we continue to be at the forefront of the digital payments revolution. PayPal gives people better ways to manage and move their money, offering them choice and flexibility in how they are able to send money, pay or get paid. We operate an open, secure and technology agnostic payments platform that businesses use to securely transact with their customers online, in stores and increasingly on mobile devices. In 2015, 28% of the 4.9 billion payments we processed were made on a mobile device. With our 188 million active customer accounts, PayPal is a truly global payments platform that is available to people in more than 200 markets, allowing customers to get paid in more than 100 currencies, withdraw funds to their bank accounts in 56 currencies and hold balances in their PayPal accounts in 25 currencies. For more information on PayPal, visit https://www.paypal.com/about. For PYPL financial information, visit https://investor.paypal-corp.com.

Presentation

All growth rates represent year-over-year comparisons, except as otherwise noted. FX-neutral results are calculated by translating the current period’s local currency results by the prior period’s exchange rate. FX-neutral growth rates are calculated by comparing the current period's FX-neutral results by the prior period's results, excluding the impact from hedging activities. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not sum or recalculate using the rounded dollar amounts provided.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as “non-GAAP financial measures” by the Securities and Exchange Commission (SEC): non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate and free cash flow. In addition, the company has included certain pro forma adjustments in its presentation of prior year non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per diluted share, and non-GAAP operating margin in this presentation (collectively referred to as “non-GAAP pro forma measures”). These adjustments reflect items that are factually supportable, directly attributable to the separation of the company from eBay Inc. on July 17, 2015, and expected to have a continuing impact on the company’s results of operations. The company has included these pro forma adjustments because management believes that they help to facilitate comparisons of the company’s operating results between periods. In discussing year-over-year comparisons, including guidance net revenues growth rates, the company has chosen to present non-GAAP pro forma measures because it believes that these measures provide investors a consistent basis for reviewing the company’s performance across different periods. For an explanation of the foregoing non-GAAP measures, please see “Non-GAAP Measures of Financial Performance” included in this press release. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see “Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,” “Reconciliation of GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate,” “Reconciliation of Operating Cash Flow to Free Cash Flow,” “Reconciliation of GAAP Operating Margin to Non-GAAP Pro Forma Operating Margin, GAAP Net Income to Non-GAAP Pro Forma Net Income, and GAAP Diluted EPS to Non-GAAP Pro Forma Diluted EPS,” and “Reconciliation of GAAP Net Revenues by Type to Non-GAAP Pro Forma Net Revenues by Type, and GAAP Net Revenues by Geography to Non-GAAP Pro Forma Net Revenues by Geography” included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the future performance of PayPal Holdings, Inc. and its...


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