The following commentary was originally sent to Action Alerts PLUS subscribers on Jan. 27, 2016.
PayPal (PYPL) delivered a top- and bottom-line earnings beat for the 2015 fourth quarter after the close Wednesday, with EPS of $0.36 coming in $0.02 ahead of consensus while revenues of $2.56 billion (up 16.6% year over year) topped $2.51 billion consensus. The company issued in-line guidance for both the 1Q of 2016 (sees EPS of $0.34-$0.36 vs. $0.35 consensus and revenue of $2.47 billion to $2.52 billion vs. $2.48 billion consensus) and fiscal 2016 (EPS of $1.45 to $1.50 vs. $1.50 consensus and revenues of $10.5 billion to $10.7 billion vs. $10.68 billion consensus).
Meanwhile, the company authorized a gigantic $2 billion share repurchase program, which not only represents over 5% of the company's market cap but can be seen as a signal that management views shares as undervalued at current levels.
The company reported that total payment volume (TPV) increased 29% in the quarter to $82 billion, well above sell-side estimates that called for under $80 billion. Within the total, merchant services TPV accelerated to 36% year-over-year growth -- representing over 80% of overall TPV -- while mobile payment volume held its own and then some, increasing 45% year over year to $20 billion.
Throughout the holiday season, customers and merchants signed up for the company's products and services in record numbers. The company grew its active account base by 6.6 million in the fourth quarter, ending the year with 179 million active customer accounts.
The company deepened and extended its engagement with customers and merchants alike, driving a mutually beneficial relationship that in turn unlocks a powerful ecosystem and thereby a virtuous cycle of expansion. Payments processed on the company's social payments platform, Venmo, grew a whopping 174% year over year to $2.5 billion of TPV in the quarter. PayPal announced it is expanding the capabilities of Venmo beyond its scope as a social peer-to-peer payment service as users will now be able to use the app to make purchases at participating merchants within the U.S.
PayPal expanded its technology platform and further solidified its role as a leading global payment system, announcing in its release that it has signed business deals with new partners including First Data, Alibaba Wholesale and Facebook Messenger, each of which is a gigantic partnership in its own respective rights. These deals follow the December announcement that PayPal's Braintree system is being utilized by major transportation players such as Uber.
We are beyond impressed by the company's results, and suspect management's initial guidance will prove conservative given the powerful momentum driving the convincing beat.