PayPal Growth Starts to Normalize in Second Quarter

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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