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Will 2016 Be PayPal's Best Year Yet?
2016: Setting New Baselines In 2016, PayPal will complete its first calendar year as an independent company, having completed a spin-off from parent eBay in July 2015. The coming year will establish baselines against which future years will be measured. In the next few slides, we'll look at what PayPal needs to achieve next year to reach its best performance ever.
Goal #1 Maintain and extend TPV growth. Total Payment Volume, or TPV, is a measure of the total transaction volume that PayPal facilitates through its payments platform. The company has booked TPV growth of just under 27% through the first three quarters of 2015, on a currency-neutral basis. Look for PayPal to either hold this rate or exceed it during 2016.
Goal #2 Hit 4 million plus new active customer accounts each quarter. PayPal scales revenue by adding new active customer accounts at a brisk pace. Over the last six trailing quarters, PayPal is averaging 4.2 million new customer accounts per quarter. The company needs to maintain an addition rate beyond 4 million new accounts per quarter throughout 2016, to keep the following growth curve in shape:
Source: PayPal Investor Presentation, Q3 2015
Goal #3 Improve Operating Income Margin In the first nine months of 2015 and 2014, PayPal booked an operating income margin of 15.7% and 15.8%, respectively. In 2016, the company can improve this margin in the following ways: Increase "take" rate (net revenue on transactions) Decrease transaction and loan loss expenses Control general and administrative expense
Gain market share through TPV which expands faster than the payments industry's growth rate, add new customers, and control both transaction expense and overall company expense. The Big Idea
Another theme to watch in 2016: possible additional acquisitions? Braintree: acquired in 2013 for $800 million; mobile payment gateway used by companies like Airbnb and Uber. Paydiant: acquired in 2015 for $200 million; also expands capabilities in mobile payments. Xoom: acquired in 2015 for $1 billion; the digital remittances company helps PayPal compete in the global money transfer market.
But as important as acquisitions are for us, our internal innovation efforts will always be our primary driver of value…We now have a powerful combination of internal innovation efforts and acquisition firepower working in tandem. That's a strong combination to drive and further differentiate our leadership position. --CEO Dan Schulman, Q3 2015 Earnings Conference Call
Going forward... We'll get an idea of PayPal's current momentum when the company reports its final quarter of 2015 next month, in the last week of January. Investors will want to check in on the volume, customer, and expense trends we've looked at to understand if PayPal will begin 2016 in a position to enjoy its best year yet.
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