PayPal acquisitions squeeze earnings outlook

PayPal shares continued to slump after the company provided earnings guidance earlier this week that fell short of Wall Street estimates, due to the impact of recent acquisitions. 

Shares were down 2.75% at $113.90 in late morning trading on Friday. 

The company announced a $4 billion acquisition of rewards platform Honey Science Corp., in November. In December, PayPal announced a commercial agreement with Latin American payments platform MercadoLibre, for the companies to jointly leverage their scale. 

PayPal in December completed the purchase of a 70% stake in Guofubao Information Technology Co., making it the first foreign payments platform with licensed access to the Chinese online payments market. Earlier this month, PayPal announced a deal with UnionPay International, which will allow the companies to jointly serve consumers and merchants. 

"In 2020, we expect our operating margin to be essentially flat as a result of absorbing acquisition related dilution, while continuing to invest in other key initiatives," CFO John Rainey, said on a conference call with analysts.

The company is also spending to enhance Venmo, international growth, PayPal's in-store POS and several new partnerships.

The company said the impact of recent acquisitions would impact non-GAAP earnings by about 8 cents to 10 cents a share, during the first quarter.

PayPal is forecasting non-GAAP earnings per share of between 76-78 cents a share in the first quarter of 2020. Revenue is expected to increase about 17-18% on an FX-neutral basis to reach $4.78 billion to $4.84 billion.

For the 2020 year, PayPal is forecasting non-GAAP earnings of between $3.39 and $3.46 per share. Revenue is expected to grow more than 18% to between $20.8 and $21 billion. 

The company reported a 14% increase in net new active accounts in the quarter, rising by 9.3 million to 305 million. 

Transactions rose by 21% to 3.5 billion in the quarter, while total payment volume rose by 22% to $199 billion. 

PayPal reported a double-digit increase in user engagement, growing 10% to 40.6 transactions per user account. Mobile accounted for much of that increase, representing 44% of total payment volume.

Venmo, the social payments unit, processed more than $29 billion during the quarter, an increase of 56% over the prior year.  Venmo ended the year with 52 million active accounts.

Schulman noted that Venmo signed a deal with Synchrony last year to provide a Venmo credit card and he announced Wednesday that Synchrony was the exclusive network provider for the card.

For the year, non-GAAP earnings rose 28% to $3.10 a share, while revenue rose 19% to $17.8 billion. Excluding unrealized gains, the company reported earnings of $2.96 a share, a 25% increase from year-ago figures. 

Revenue increased 17% in the quarter to $4.96 billion.

Cover image: PayPal