PayPal's e-commerce sales growth took a hit from supply chain issues and rising inflation, but consumers welcomed the company’s new “super app" — and those who use it are spending more money.
About half of PayPal’s customer base can access the multifunction app, which launched in October, and the app is already generating double the average revenue per account compared with users who don't use the super app, the company said when announcing quarterly results on Tuesday.
A super app is one that combines a range of typically unrelated financial services, with the goal of cross-selling to consumers more easily. The app’s newest feature is a savings account that became available to the first wave of users last month, with plans to reach all app users by this spring.
“We want to spend marketing dollars on moving people into the app,” PayPal CEO Dan Schulman said on an earnings call. The number of PayPal users discovering merchants through the app’s shopping tab during the quarter rose 700%, and in-app donations to charities through the app rose 300% during the same time period, he added.
“We have quite a few people on the waiting list for" the savings account, Schulman said. PayPal will be working throughout the rest of this year to link additional features within the app, he noted.
Venmo, PayPal’s peer-to-peer payments app, will turn an “important corner,” this year with Amazon planning to add Venmo acceptance in the coming months, Schulman said.
More than 83 million consumers are using Venmo now in the U.S., Schulman said. DoorDash and Starbucks have already announced plans to accept Venmo, and a number of other high-profile merchants plan to add Venmo this year, he said.
“I feel like we’re in the very beginning stages of the monetization process" with Venmo, Schulman said. Venmo’s revenue reached $250 million during the fourth quarter; the P2P app’s full-year revenue rose 80% to $900 million, he said.
During the most recent quarter, PayPal’s sales were weaker than expected due to supply chain problems hampering the company’s cross-border business and the effects of inflation dampening customer spending, according to Schulman. Rising threats from COVID-19 variants also cut into travel and event bookings during the quarter, he said.
PayPal reported fourth-quarter revenue rose 13% year over year to $6.9 billion. Net income for the quarter was $801 million, compared with $1.5 billion a year earlier.
PayPal's stock closed on Wednesday at nearly $133 a share, down about 24% from the prior day.
“Our medium-term targets simply did not contemplate inflation at a 40-year high and supply chain issues not seen in my lifetime,” PayPal's chief financial officer John Rainey told analysts, noting he expects to see PayPal's transaction volume growth accelerate in the second half of this year.
A bright spot during the quarter was surging volume for PayPal’s buy now/pay later “Pay in 4” service. BNPL generated $3.2 billion in total payment volume during the fourth quarter, through 1.2 million merchants in eight global markets, according to Schulman.
PayPal added 9.8 million new active accounts during the latest quarter, down significantly from 16 million new accounts added in the fourth quarter of 2020.
One reason for the decline in new users is PayPal’s failed experiment in using incentives to entice prospective customers over the last two years, Schulman said.
“What we found was [new users] would do one transaction, then fall dormant again,” he said, noting that PayPal will henceforth focus more on increasing engagement with existing users instead of pursuing large numbers of new users through promotions.
PayPal ended the year with 426 million active accounts, up 13% from a year earlier.
PayPal "would need to demonstrate that it is still capable of sustaining revenue growth north of 20% on a normalized basis before we would be comfortable assigning it the kind of premium multiple that would indicate significant upside from current trading levels," Mark Palmer, managing editor and fintech analyst at BTIG, a New York-based equity research firm, wrote in a Wednesday note to investors.
Still, "we continue to believe in the long-term potential of [PayPal's] payments platform and the 'super app' it has been building," Palmer wrote.
