PayPal goes mobile to lure customers, fend off competitors

[SEATTLE] PayPal Holdings Inc keeps adding new customers and merchants despite an onslaught of competition from credit-card issuers, startups and smartphone makers looking for a piece of the fast-growing digital payments market.

Chief executive officer Dan Schulman said the company's one-touch mobile payments feature - which lets shoppers complete transactions on smartphones with the push of a button - is the key attraction. The performance on mobile helped PayPal on Wednesday post first-quarter sales and profit that were higher than projected.

More than 21 million customers of PayPal's 184 million account holders are using the feature that was introduced last year, which Mr Schulman said indicates customers like the product and more of them will embrace it.

"This is the most rapidly adopted service in PayPal's history," said Mr Schulman, who took over as CEO in July when PayPal split from its parent company EBay Inc.

"We have a lot more potential with this service."

Mr Schulman wants to transform the company from a payment button on a website into a versatile financial tool that lets users pay merchants, send money to friends and discover nearby dining and shopping options through smartphone apps.

He hopes adding new functions will make PayPal users more engaged with the platform on mobile devices and less likely to defect to payment options from Apple Inc, Visa Inc and Samsung Electronics Co.

PayPal gained as much as 6 per cent to US$42.42 in extended trading after closing at US$40.01 in New York. The company's stock has increased 11 per cent this year.

Transactions Volume

PayPal handled US$81.1 billion in transactions in the first quarter, an increase of 31 per cent from a year earlier, and a key metric to gauge growth. The company added 4.5 million new customer accounts and now has 14 million merchants taking payments through the platform.

Profit, excluding certain items, was 37 US cents a share on revenue of US$2.54 billion in the quarter, San Jose, California-based PayPal said Wednesday in a statement.

Analysts on average projected earnings of 35 US cents and sales of US$2.50 billion, according to data compiled by Bloomberg. Revenue was US$2.14 billion in the period a year earlier.

Net income was US$365 million, or 30 US cents a share, in the quarter compared with US$255 million, or 21 US cents, a year earlier.

"Accelerating TPV to 31 per cent and revenue to 23 per cent growth rates are the most impressive figures, especially considering most other large technology companies are dealing with decelerating growth," said Gil Luria, an analyst at Wedbush Securities Inc.

Mobile Payments

PayPal's payments on mobile devices are helping the company stand out as shoppers shift their spending from desktop computers to smartphones, said Josh Olson, an analyst at Edward Jones & Co.

Spending on mobile devices in the US is expected to increase 39 per cent this year to more than US$123 billion, according to EMarketer.

"People are making mobile payments on the go and PayPal makes it extremely simple," Mr Olson said.

"They were at the right place at the right time with the right technology."

The electronic payments company forecast earnings, except certain items, in the current quarter of 34 US cents to 36 US cents a share, compared with estimates for 35 US cents. The company said it sees revenue of US$2.57 billion to US$2.62 billion, compared with estimates of US$2.58 billion.

The company's take rate, the amount of each transaction PayPal keeps for itself, was 3.14 per cent. It's another number watched by investors. The result topped projections from Neil Doshi, an analyst at Mizuho Securities USA, who projected a rate of 2.84 per cent.

Apart from adding new users, Mr Schulman said PayPal's customers are more engaged, completing an average of 28 transactions in the quarter, up from 25 a year earlier. Mr Schulman sees customer engagement as a key measure indicating PayPal is broadening its reach beyond online shopping.

BLOOMBERG