PayPal processed $190.5 billion in transactions during the first quarter, but its profits fell by 87 percent. As the coronavirus pandemic disrupted economies worldwide, the company’s income took a major hit.
However, the firm’s disclosures about its Q2 performance suggest a near-term upswing in global economic activity – and an advantageous change in consumer behavior.
PayPal’s Brutal Q1 Results
In the first three months of 2020, PayPal generated $4.61 billion in revenue, which represents a 12 percent increase year-over-year. But the digital transaction facilitator’s net profits did not experience similar growth, totaling only $84 million, down from $667 million in Q1 2019. The firm’s quarterly filings indicate its losses came from charge-backs and non-performing assets, or loans that have not been repaid in the agreed-upon timeframe.
The corporation prepared its investors for bad news in Q1 when it withdrew its guidance for the last period in anticipation of a COVID-19 related downturn in revenue. But as the coronavirus outbreak turned into a pandemic, the payment processor’s core business began to slide precipitously. The firm saw significant declines in its travel and transportation verticals, and skyrocketing unemployment rates devastated its credit product earnings.
Indeed, Airbnb, Expedia, and TripAdvisor all initiated mass layoffs because of COVID-19’s impact on their industry.
Although PayPal had a terrible first quarter, the company’s more recent results indicate the company will rebound as soon as the June period.
Bigger than Black Friday or Cyber Monday
The San Jose, California-based fintech company’s stock reached an all-time high after experiencing a 14 percent surge following its Q1 reporting. The corporation’s share price jumped because its April revenue rose by 17 percent from 2019, and the firm expects 15 percent growth for the entire quarter. The company also revealed it added 7.4 million new active accounts last month, a yearly increase of 135 percent.
In an earnings call, Schulman declared PayPal experienced its largest daily transaction volume ever on May 1, exceeding the traffic it experienced during last Black Friday and Cyber Monday. The executive ascribed its unprecedented rise in business to a widespread transition from physical to digital payment processing.
The global shift to e-commerce purchasing in Q1 was not confined solely to PayPal’s network. Online financial services company Square recorded an upswing in transactions beginning in mid-April. Moreover, Reuters states Shopify and eBay saw increased activity in the post-pandemic era.
In addition, Big Tech giant Amazon added 100,000 people to its logistics workforce to manage increased demand.
The coronavirus pandemic has prompted consumers to do more shopping online out of necessity due to government lockdown mandates. However, experts like FirstMark Capital partner Amish Jani believe COVID-19 will cause a permanent change in buyer preferences toward e-commerce. After all, digital purchasing saves on user transportation time and costs as well as lowering the risk of communicable disease infection.
As an established leader in the financial technology space, PayPal is in prime position to take advantage of a paradigm shift in global trade.