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Stock Analyst Update

PayPal Growth Starts to Normalize in Second Quarter

We maintain our fair value estimate for the narrow-moat company.


PayPal (PYPL) reported impressive growth in the second quarter on an absolute basis, but the pace of improvement is easing as the narrow-moat company starts to fully lap the tailwinds at the onset of the pandemic and sees some headwinds from the wind-down in its eBay relationship. We will maintain our $139 fair value estimate.

Total payments volume was up 40% year over year, or 36% on a constant-currency basis. This drove 19% growth in net revenue, or 17% on a constant-currency basis. Growth in payments per active account continued to accelerate, increasing 11% year over year.

Net new active accounts for the quarter were 11.4 million, a significant deceleration from the 14.5 million last quarter. This suggests pandemic-related tailwinds have waned and the rate of customer acquisition may returning to normal, although this quarter’s level was still a bit ahead of the roughly 9 million-10 million quarterly pace before the pandemic. Management’s guidance suggests a bounceback closer to the first-quarter rate through the rest of the year.

Venmo saw 58% year-over-year growth in payment volume in the quarter. Management stated that revenue grew almost 70% year over year, suggesting that efforts to monetize the platform through ancillary services are bearing fruit. However, management’s 2021 revenue target equates to only about 4% of the company’s overall expected revenue, suggesting that Venmo’s financial impact on overall results will be somewhat limited.

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Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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