PayPal Adds 15 Million Accounts in Q3

By Bruce Harpham Wednesday, November 4, 2020

PayPal (NASDAQ: PYPL) keeps growing during the pandemic, thanks to ecommerce spending. The company added over 15 million user accounts, including 1.5 million merchants. With $247 billion in payments processed in the quarter, PayPal continues to exceed industry estimates. For the fiscal year, PayPal management is now forecasting 20% growth compared to last year's results.

By the Numbers — PayPal's Q3 Results

PayPal's growth success is driven by its ability to process large volumes of payments, attract more shoppers, and gain more merchants.
Revenue. In Q3, the company reported 5.46 billion in revenue, a 25% increase compared to a year before.

  • Net Income. Unlike Square, PayPal continues to achieve significant profits. In Q3 2020, the company earned $1 billion in net income. That income is up more than 100% from Q3 2019 income of $462 million.
  • Account Growth. In the past year, PayPal has added 66 million user accounts with 28 million merchant accounts.
  • Highest growth segments. In Q3, PayPal reported that fashion, auto parts, cosmetics, gaming, and home goods were the fastest-growing cross-border trade segments.
  • Stock Price performance. While the stock suffered a sharp decline after the Q3 results were released, PayPal stock has performed well in 2020. From a price of $108 in early January, on January 3, the stock closed at $187 on November 2.

$3 Billion on Acquisitions in 2020

With billions in cash on its books, PayPal is focusing its resources on growth. This year, the company has spent $3.7 billion on acquisitions and strategic investments. Capital allocation means investors will need to be patient. Stock repurchases reached a high of $3.5 billion in 2018. In 2019 and 2020, stock purchase spending fell to $1.4 billion each year.

Last year, PayPal spent $4 billion to acquire Honey Science Corp, a startup based in Los Angeles. Honey helps buyers find discounts and deals in online shopping. At the time of the acquisition, the company had 17 million monthly active users.

PayPal Now Has a Credit Card

PayPal's pursuit of retail customers took a significant leap forward in 2020. In partnership with Visa, PayPal launched the Venmo Credit Card. Customers will be able to make purchases directly using the Venmo app. Credit card processing for this service is provided by Synchrony (NYSE: SYF).

PayPal Welcomes Cryptocurrencies

In its early years, PayPal fought long and expensive battles against fraud. Building on that expertise, PayPal and Venmo have decided to formally process cryptocurrencies on its platform. In practical terms, merchants can exchange cryptocurrency into traditional currency. From that point of view, PayPal's approach doesn't directly threaten traditional fiat currency.

Nonetheless, PayPal's move goes a long way to raise the legitimacy of cryptocurrency for everyday payments instead of solely operating as a speculative investment. At first, the company will support bitcoin, Bitcoin Cash, Ethereum, and Litecoin. To promote the new service, PayPal will apply no service fees to buy, sell, or hold cryptocurrency until December 31, 2020.

PayPal is managing the risk with these currencies in two ways. The company has partnered with Paxos Trust Company to use the Paxos Crypto Brokerage service. Additionally, New York state gave PayPal a "BitLicense" in October 2020 to facilitate offering crypto services in New York.

Competition from rival payment company Square (NYSE: SQ) may be driving the move. Square announced support for cryptocurrency in 2018. As of Q2 2020 results, the company has approximately 37 million monthly active users in June 2020. In Q2, Square processed over $22 billion in payment volume. In terms of volume, Square is about one-tenth the size of PayPal.

PayPal Expands Consumer Lending

PayPal is continuing to grow beyond its roots in payments by offering loans. The company's consumer loan product — "Buy Now Pay Later" — has been expanded to customers in the United States and the United Kingdom. The product directly competes against traditional credit cards, lines of credit, and other consumer finance vehicles. To entice customers, the product lets "consumers make a purchase and pay over interest-free installments," according to a company release.

While the company does not disclose the number of loans, it is possible to estimate indirectly. As of September 30, 2020, PayPal had a current asset of "loans and interest receivable, net" of $2.5 billion on its balance sheet. That's down from $3.9 billion at the end of 2019.

PayPal's Increasing Debt Load

Offering customers interest-free loans may be one reason PayPal is taking on more debt. As of Q3 2020 results, the company reported $8.9 billion in long-term debt, up from $4.9 billion at the end of 2019. Taking on this debt level may limit the company's future options to grow and borrow if its record growth ever slows down.

About the Author


Headshot for author Bruce Harpham

Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.

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