Impressive 1st-Quarter Results Spark PayPal's Comeback

With strong results and innovative AI-driven strategies, the company is staging a powerful comeback

Ianis Zoln Panos

• The impressive quarterly financial results indicate PayPal's strong financial results, transaction volume and growth growth.
• The strategy utilizing AI has enhanced the chec k-out experience, greatly improving the conversion rate and customer engagement.
• The launch of the Pyusd Stable Coin creates a new growth opportunity to enhance the cros s-border payment function.
• Strategic cost management and improvement of efficiency have enhanced PayPal's profitability and market status.

PayPal Holdings (PYPL) is just one of many Fintech companies that have missed that number many times for the past three years. The company, one of the most popular settlement companies that provides safe remittance methods, is rapidly suffering from business performance.

The business, which was separated from EBAY (eBay, finance) in 2015, has grown remarkably, doubling from 18 billion users in 2015 to 380 million users by 2020. The trend of COVID-19 of this year has changed many things. Most people were forced to work at home and had to shop online, so they were popular for payments and receiving money. The number of users increased 24 % yea r-o n-year.

There is no longer any growth as when it was an EBAY main payment platform. The stock price, which is traded at 2. 30 times the sales, is evaluated as one of the wors t-performance stocks in the settlement sector.

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For the past three years, PayPal has faced great pressure, but the tide seems to be changing. After 80 %, it may be cheap now. However, the stock price has begun to show signs of bottoming, as the moving average convergence / divergence indicator exceeds the zero line and the possibility of buying pressure increases.

PayPal stock chart with MACD

PYPL Data by GuruFocus

New CEO leads record achievements

PayPal ran powerfully over 2024, exceeding the analyst forecast in the first quarter. Alex Chris, a six months ago, has grown the core business in a visible growth. Such a goal is largely due to a strategic initiative, which reduces operating costs and increases transactions.

The company's first quarter results were impressive, with reported revenues of $7. 7 billion, up 9%. This growth was driven primarily by a 14% jump in total payment volume, reaching $404 billion. The number of payment transactions per active account increased from 53 to 60, a clear indication of increased engagement and usage of the PayPal platform, registering a 13% increase.

Furthermore, transaction margins improved significantly in the first quarter, growing 4% to $3. 46 billion. Thus, increasing transaction margins are a key indicator of the company's ability to monetize transactions, even amid challenges in the generic market. In addition, non-operating income increased 18. 20% year-over-year to $1. 4 billion, representing effective asset management outside of the company's core PayPal business.

Finally, the strong results demonstrate that the company's tight control over operating expenses resulted in higher-than-expected operating margins. PayPal's active accounts rose 1% to 427 million, a slight but important increase.

Meanwhile, monthly active accounts rose 2% to 220 million, and payment transactions rose 11% to 6. 5 million, suggesting a continued increase in user activity and engagement with the platform.

PayPal quarterly revenue trends

Source: PayPal

PayPal pivots to AI: revolutionizing checkout with game-changing Fastlane technology

PayPal is pivoting deeper into artificial intelligence, with an eye on strengthening its operations and addressing some of the issues that have impacted its past performance. The AI ​​effort is also part of the company's plan to rejuvenate its appeal and usability in the competitive fintech space.

What PayPal has done now with the power of AI is to reinvent the checkout experience. Fastlane is entirely one-click and does not require sharing usernames or passwords. And already, this checkout time reduction alone, using AI innovations, is expected to help the company reduce checkout times by up to 40% and increase cart-to-checkout conversion rates by an additional 70%.

According to Andrew Gosselin, CPA and strategy consultant, PayPal can once again gain an edge by leveraging AI to personalize and streamline the checkout process. AI analyzes customer data, makes tailored recommendations and cashback suggestions, and optimizes payment options based on past behavior. This improves customer experience and significantly increases conversion rates. In tests with BigCommerce, it increased conversion rates from a range of 40%-45% to 70%. Such AI-driven innovations therefore drive higher sales and engagement, positioning PayPal as a leader in fintech.

To that end, PayPal also offers smart receipts, a groundbreaking technology that allows users to efficiently track their purchases. Merchants will also include AI-powered personalized recommendations and reward offers on the receipts.

Launch of PYUSD Stablecoin unlocks new growth and cross-border potential

Last year, PayPal was the first significant financial services company to launch a stablecoin as part of its quest for growth opportunities in the fast-growing sector.

While the company has not posted crypto-related revenues in the past, the CEO claims there are compelling unit economics and market upside, and the unit is going from strength to strength. For starters, PayPal has already confirmed that its cross-border money settlement unit, Xoom, will enable customers to send and receive PYUSD stablecoins overseas with zero fees.

PayPal's entry into stablecoins is not just a response to growing interest in cryptocurrencies and blockchain technology, but a strategic move to capitalize on this trend. Thus, leveraging the company's history of compliance with robust regulatory frameworks and its focus on strengthening the fiat-to-crypto process, the company is positioning itself to capture a significant share of institutional investment capital.

As such, the company is well-positioned to capitalize on the growing demand for stablecoins and their potential role in transforming the financial system.

Market expectations and operational efficiency

At the same time, PayPal's operating efficiencies were also evident, with adjusted operating expenses down 6. 40% quarter-on-quarter to $1. 73 billion.

This decline emphasizes cost management and efficiency, which is a strategic direction of PayPal, which will continue in the next quarter. Such an initiative is very important in reducing the impact of the margin from brain tree business. In addition, the company has been intensively expanding its brand chec k-out business, growing 7 % from the same period of the previous year, and has begun to work positively for financial indicators.

Brain trees are a lo w-profit business, but has contributed to 37%of PayPa l-determined. For this reason, the overall margin of PayPal has been a little diminished due to its integration, but Brain Tree has more than enough.

Finally, the improvement of the new apps and user experience promotes continuous relationships with users, expands reach, and attracts new customers.

Overview of PayPal's revenue, net income, eBitDa growth rate

Concluding thoughts

Analysts continue to be bullish in PayPal's future potential, and consensus predictions are 7. 70%of the top lines up to 2026, and the bottom line growth rate is 11. 10%.

The new forecast reflects a confident reaction to PayPal's strategic direction and the pace of revenue growth, as the new forecast has greatly exceeded the previous forecast. PayPal has a strong track record of returning shareholders, such as erasing 5. 40 % of shares in the past 12 months and significantly reducing leverage of balance sheets.

For the last three years, PayPal has been underpertable, and the growth indicators have been hit. The stock price has fallen by more than 80%from the highest price in 2021, which is now reflecting deep market adjustments.

The financial results for the first quarter of 2024 indicate that PayPal is certainly in the year of conversion, but also shows that it is on track of recovery of profits and profits. With the new management starting a reconstruction strategy, PayPal seems to have begun a major reform.

Finally, the stock price is currently cheap, so it may be a good opportunity for lon g-term investors to pick up PayPal as a value proposition in technology.

Disclosures

I currently have the position of the brand I mentioned, but I don't plan to sell some or all of the brand positions mentioned within 72 hours in the next 72 hours.

Results Season Special - Q1 2024

Julie covers PayPal's shocking PR; Alex is loving LendingClub making boring sexy and Simon contrasts Citi vs Chase in a tale of two banks.

Fintech Otaku. < SPAN> This decrease emphasizes cost management and improvement of efficiency, which is a strategic direction of PayPal, which will continue in the next quarter. Such an initiative is very important in reducing the impact of the margin from brain tree business. In addition, the company has been intensively expanding its brand chec k-out business, growing 7 % from the same period of the previous year, starting to work positively for financial indicators.

Brain trees are a lo w-profit business, but has contributed to 37%of PayPal's total. For this reason, the overall margin of PayPal has been a little diminished due to its integration, but Brain Tree has more than enough.

Finally, the improvement of the new apps and user experience promotes continuous relationships with users, expands reach, and attracts new customers. Overview of PayPal's revenue, net income, eBitDa growth rate

1. Analysts continue to be bullish in PayPal's future potential, and consensus predictions are 7. 70%of the top lines up to 2026, and the bottom line growth rate is 11. 10%.
2. The new forecast reflects a confident reaction to PayPal's strategic direction and the pace of revenue growth, as the new forecast has greatly exceeded the previous forecast. PayPal has a strong track record of returning shareholders, such as erasing 5. 40 % of shares in the past 12 months and significantly reducing leverage of balance sheets.
3. For the last three years, PayPal has been underpertable, and the growth indicators have been hit. The stock price has fallen by more than 80%from the highest price in 2021, which is now reflecting deep market adjustments.

Julie: PayPal over-promised and under delivered

The financial results for the first quarter of 2024 indicate that PayPal is certainly in the year of conversion, but also shows that it is on track of recovery of profits and profits. With the new management starting a reconstruction strategy, PayPal seems to have begun a major reform.

Finally, the stock price is currently cheap, so it may be a good opportunity for lon g-term investors to pick up PayPal as a value proposition in technology.

I currently have the position of the brand I mentioned, but I don't plan to sell some or all of the brand positions mentioned within 72 hours in the next 72 hours.

Fintech Otaku. This decline emphasizes cost management and efficiency, which is a strategic direction of PayPal, which will continue in the next quarter. Such an initiative is very important in reducing the impact of the margin from brain tree business. In addition, the company has been intensively expanding its brand chec k-out business, growing 7 % from the same period of the previous year, and has begun to work positively for financial indicators.

• Brain trees are a lo w-profit business, but has contributed to 37%of PayPal's total. For this reason, the overall margin of PayPal has been a little diminished due to its integration, but Brain Tree has more than enough.
• Finally, the improvement of the new apps and user experience promotes continuous relationships with users, expands reach, and attracts new customers.
• Overview of PayPal's revenue, net income, eBitDa growth rate
• Analysts continue to be bullish in PayPal's future potential, and consensus predictions are 7. 70%of the top lines up to 2026, and the bottom line growth rate is 11. 10%.
• The new forecast reflects a confident reaction to PayPal's strategic direction and the pace of revenue growth, as the new forecast has greatly exceeded the previous forecast. PayPal has a strong track record of returning shareholders, such as erasing 5. 40 % of shares in the past 12 months and significantly reducing leverage of balance sheets.

For the last three years, PayPal has been underpertable, and the growth indicators have been hit. The stock price has fallen by more than 80%from the highest price in 2021, which is now reflecting deep market adjustments.

The financial results for the first quarter of 2024 indicate that PayPal is certainly in the year of conversion, but also shows that it is on track of recovery of profits and profits. With the new management starting a reconstruction strategy, PayPal seems to have begun a major reform.

Finally, the stock price is currently cheap, so it may be a good opportunity for lon g-term investors to pick up PayPal as a value proposition in technology.

I currently have the position of the brand I mentioned, but I don't plan to sell some or all of the brand positions mentioned within 72 hours in the next 72 hours.

Fintech Otaku.

LendingClub: Just Keep Swimming – by 💰 Alex

We're Alex, Julie and Simon. A more macro view from a fintech analyst is another way to look at the market. Not a professional market analyst (or investment advice!). Where is the industry now and what can we learn from the major public companies?

After a strong 2023 financial year, what's in store for 2024?

There's sure to be some shocking PR.

Julie is shocked by PayPal's shockingly bad PR.

Alex is fascinated by Lending Club's lacklusterness.

And Simon tells the story of two megabanks separated only by merit.

1. The first rule of fight club is not to talk about fight club. The first rule of being a public company CEO is to keep your promises and over-deliver. If you're going to proclaim that you're going to "shock the world" after a celebrity becomes the US president, a global pandemic, a terrorist attack at a music festival, and a whole lot more, you'd better make sure you actually do so.
2. Apparently PayPal's new CEO, Alex Kris, didn't get this memo.
3. Well, that was a long preamble, but I admire PayPal and think there is still a lot of potential for this payment giant. At the same time, what was announced at the Innovation Day on January 25th was far from shocking.

Here is an overview of the five new features:

Fastlane by PayPal: This feature gives shoppers a one-click guest checkout experience, eliminating the need for lengthy sign-ins and updating personal information. Customers can shop quickly and securely, and merchants can increase sales.

PayPal Smart Receipts: Smart Receipts use AI to predict what customers want to buy next from a merchant and include personalized recommendations and cashback rewards on the receipt. This improves customer engagement and encourages repeat business.

PayPal Advanced Offers Platform: This platform provides merchants with a personalized, performance-based offers system, leveraging customer insights to deliver the right promotions. Customers will receive more targeted offers based on their purchasing behavior, enhancing their shopping experience.

• Refreshed PayPal App and CashPass: The PayPal app now includes CashPass, which offers personalized cash back offers from top U. S. brands. Customers will have easy access to these offers right in the app, encouraging them to shop and pay with PayPal on a regular basis.
• Nex t-generation VenMo Business Profile: VenMo introduces enhanced business profiles with subscription buttons, profile rankings, and promotional functions. As a result, small and mediu m-sized enterprises can increase their profile, promote traffic, increase sales, and consumers can find to p-ranked companies and enjoy cashback transactions.
• What is more shocking is that these features were not implemented more than a year ago, as some competitors have already implemented.

PayPal spent a few weeks to several months, and hoped for a victory. In fact, some of the 45 analysts in charge of PayPal's stock price have expressed new alerts and concerns about the future of PayPal from the beginning of the year.

Morgan Stanley's James Four Set has reduced the PayPal position from overweight to equal weight, stating that the progress of PayPal's strategic main measures was too slow. "PayPal has gained a chec k-out market share for online markets, especially for young consumers, and has declined confidence in the ability to maintain, so PayPal should be traded in a large premium to other companies in the same industry. I am no longer optimistic because of the fact that Venmo is already growing and intensifying.

• Mizuho Securities Dan Dref also issued a note of alerts before and after the announcement. In the first memo, Dref stated that he was concerned about Apple Pay, consumer mobile shifts, and shifts from PayPal's brand chec k-out. In a memo after the announcement, Drev stated that new features are not very useful to solve these problems. "In our opinion, these measures are unlikely to solve the problem we pointed out when we lowered to neutral last week," he wrote.
• Finally, let's quote the words of my friend Matthew Goldman, the founder of my friend TOTAVI. It is quite embarrassing to abandon the new ideas of warmth and tag AI while using the phrase that shocks the world. PayPal needs to grasp its own identity and organize the brand. Which brand is important for consumers or for merchants? Especially after failing to build Venmo Pay. Why do member stores pay 2. 9 % to VenMo payments when they can pay cards?
• One of the lessons I learned in the last 15 years is that it is much easier to start with a loan and expand deposits to build a ful l-service digital bank, rather than starting from deposits and expanding to a loan. 。

But as I say like a habit, loan is a business to learn. It takes time to understand and you can't speed up the process.

A tale of two Megabanks, separated by competence - 🧠 Simon

The lending club is a good example. The company launched in 2007 as one of the first Piero Pier lending platforms, but quickly gained significant interest from institutional investors (it became a platform for consumer vs. investors rather than the Piatupia platform. ), The stock was released in 2014 (the largest tech IPO in the year). In 2021, the lending club succeeded in acquiring Radius Bank for $ 185 million, after seven years before the c o-founder and CEO Renault Laplanse resigned, and the bank's articles of incorporation operated by the company. We started integrating to.

The result is the "Market Place Bank" that the lending club says, and is an official financial institution with an integrated loan marketplace for institutional investors. The advantage of this model is to give the lending club a great flexibility to optimize the balance sheet and profit. The company can also sell the entire loan or a mechanism (a lending club holding a senior note and selling a remaining certificate to an investor in the marketplace), and holds a loan on the balance sheet. You can do something (a lon g-term seasoning will be performed as a CECL trigger, "investment purpose holding" or before selling to a marketplace investor at another price).

Think of a modern lending club as a good swimming player. It may not be the fastest under all conditions (CEO acknowledged that the development of new product functions was a little behind in recent reduction in staffing due to recent reduction in personnel). There is no longer the majority of other companies in the same industry (the executives of the lending club are "sustainable profitability" and "elastic balance" than any financial service company I have seen. I'm talking about the sheet).

From this, I have three questions for me:

What is the current state of lending clubs?

Where is the lending club going next?

What kind of questions do you need to answer the lending club to go to where you want?~1. What is the current state of lending clubs?

The company's basic story since acquiring Radius is that it has been building up the liability side of its balance sheet ($8. 8 billion in deposits in Q4 2023, up from $3. 1 billion in Q4 2021), controlling expenses (staffing, marketing, third-party vendors, etc.) while waiting to exit the standard operating agreement for new banks with the OCC (which is a natural constraint on growth for all new banks), and surfing the waves of interest rates (Lending Club is particularly vulnerable to interest rate fluctuations).

2. Where does Lending Club go next?

A few things stand out:

• Last Friday, Lending Club formally terminated its operating agreement with the OCC. This suggests that the company was operating in a manner that met the expectations of sound banking regulators after the Radius acquisition. It also suggests that the company will have a bit more flexibility going forward in terms of its ability to allocate capital and its product roadmap. It will be interesting to see what Lending Club does with this freedom.
• Federal Reserve officials expect three gradual interest rate cuts in 2024, but the cuts will likely begin in mid-2024. If this happens, it will be a good thing for Lending Club. Lower interest rates will raise prices in the market and lower funding costs (although Lending Club is likely to be modest in interest rate cuts on its high-yield savings products, as it still wants to grow its overall balance sheet).
• Lending Club is preparing various product and feature enhancements, including a top-up feature for existing qualified personal loan customers and a line of credit product that allows approved customers to transfer accumulated credit card balances into a fully amortizing payment plan. Lending Club sees this as an important upgrade to remain a best-in-class lender for consumers looking to pay down debt. And because the line of credit is the company's first revolving product, it should create opportunities for further product development in the future.
• 3. What questions does Lending Club need to answer going forward?

Here are a few things I'm watching:

Is Lending Club fully prepared to ride the coming historic refinancing boom? This is what awaits us on the other side of a Fed rate cut, and Lending Club is preparing for it (that's what its new personal lending features are for). But how much of that boom will ultimately benefit Lending Club is unclear. In particular, I'm curious to see if the company will aggressively pursue refinancing opportunities outside of credit cards (autos come to mind).

Will Lending Club be able to maintain relationships with existing customers and get them to return to the platform for future lending needs? About half of Lending Club's loan volume comes from repeat borrowers. Can the company increase this percentage? On its most recent earnings call, Lending Club executives talked about a mobile loan servicing experience with the Lending Club app that it introduced last year, as well as debt monitoring and management tools it's currently working on. Both have the potential to help the company create more engaged customers.

Will Lending Club be able to hold onto deposits once interest rates start to fall? The company has been very successful at attracting deposits in a rising interest rate environment, but most of that has been through expensive, high-yield savings products. As interest rates fall, can Lending Club retain deposit customers for reasons other than interest rates? Can it offer a differentiated experience or utility to its checking account customers? Can it make CDs sexy again? (Author's note - I'd like to do a similar analysis of the other big fintech lender that recently became a bank, but SoFi insists on reporting revenue using a different accounting methodology than any other bank in the country, which annoys me (and banking nerds like Jason Mikula and Kia Haslett). Since going public via SPAC, SoFi has felt like a blue-chip company trapped in a mirror world run by extreme online retail traders and a guy who looks a lot like Chamath Palihapitiya. SoFi - I want to analyze you as a bank. I want to praise and criticize you as a bank. Report earnings like a bank!)

Citibank posted a $1. 8 billion loss and announced 20, 000 job cuts. In the same quarter, JP Morgan reported its best earnings ever.

JP Morgan is the sun. Now its gravity is so big that everything is drawn to JP Morgan.

The contrast between Citi and JP Morgan is stark. Back in 2008, Citi was a $220 trillion bank and Chase was a $156 trillion bank. Today, Citi has $17 trillion in total assets and Chase has $33 trillion. (I know asset size is not a perfect indicator, but it's a good proxy.)

📈 JP Morgan is investing aggressively and wisely to grow.

JP Morgan's revenues are up 12% year over year, and the bank is on track to post $50 billion in profits in 2023, driven by strong credit quality and net interest income. The stock is up 27% year over year, while the bank index is down 5%.

Chase continues to open new branches while competitors are closing branches. While competitors are shedding headcount, Chase is investing more in hiring and technology. The payoff on technology investments can be seen in the mobile user base.

Given that Chase, BofA, and Wells have roughly the same number of “active” customers (66 million, 68 million, and 68 million, respectively), the difference in mobile users here measures their ability to convert people to mobile. Best-in-class for incumbents: BBVA achieved 90% of mobile active users in 2020. Wells and BofA are closer to 50%.

In fact, Chase isn’t competing with other banks in consumer credit, it’s competing with wallets like Cash App and Venmo. This is the right benchmark.

Chase also leads the pack when it comes to small and medium-sized businesses.

Chase also leads the pack when it comes to total assets.

That's all, folks. 👋

Chase $3. 3 trillion

BofA $2. 4 trillion

Wells $1. 8 trillion

Citi $1. 7 trillion

Growth is possible for banks.

No one who works at Chase would say it's perfect or that it's free from the red tape that comes with being a bank. But the lesson is to be consistent.