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PayPal’s cryptocurrency holdings have seen a significant increase, according to the company’s recent quarterly report submitted to the US Securities and Exchange Commission.
PayPal Reveals $943 Million in Crypto Assets, Showing 56% Increase
As of March 31, 2023, PayPal disclosed a combined total of $943 million in cryptocurrency assets, reflecting a 56% surge compared to the previous quarter’s disclosure of $604 million.
The report revealed that the lion’s share of PayPal’s fintech-held cryptocurrency assets is concentrated in BTC and ETH, with respective values of $499 million and $362 million. These figures demonstrate a growth of over 56% since Q4 2022.
In the latest quarter, PayPal reported total financial liabilities amounting to $1.2 billion, of which crypto assets constituted 77.9%. This demonstrates a growth of over 10% compared to the liabilities disclosed in the fourth quarter of 2022.
PayPal classifies its crypto assets as “safeguarding liabilities” in light of the distinct risks associated with cryptocurrencies. The report confirms that the company’s holdings of specific cryptocurrencies, such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, have remained consistent since the previous quarter.
The custody of these assets on behalf of PayPal’s customers is managed by third-party holding companies, introducing a potential liability if these parties are unable to process transactions. However, the report highlights that no safeguarding loss events have occurred as of March 31, 2023, and therefore, the crypto asset safeguarding liability remains at the same value as the safeguarding asset.
In Q1 2023, PayPal’s cryptocurrency portfolio exhibited notable progress, with $499 million allocated to Bitcoin, $362 million invested in Ether, and $82 million spread between Bitcoin Cash and Litecoin. These numbers indicate a significant increase when compared to the holdings of the preceding quarter.
In addition to the growth in cryptocurrency assets, PayPal’s profitability also saw an increase in the first quarter of 2023. On a GAAP basis, the company reported per-share earnings of $0.70, while on a non-GAAP basis, per-share earnings amounted to $1.17. These figures represent significant growth compared to the corresponding periods in 2022.
PayPal Stock Drops After Warning About Operating Margin Growth
PayPal Holdings Inc. saw a drop in its stock prices recently after issuing a warning about the slower pace of growth in its adjusted operating margin.
Despite incurring higher platform expenses than anticipated in the first quarter, PayPal expects its adjusted operating margin to expand by at least 100 basis points this year, a revision from the earlier forecast of approximately 125 basis points.
In response to this news, PayPal’s stock dropped by 11% to $66.93 as of 10:21 a.m. in New York. Year-to-date, the stock has decreased by 6%, whereas the S&P 500 index has shown a 7.4% advancement.
This development arises after PayPal observed better-than-expected performance from its Braintree unit, which provides unbranded payment technology to major e-commerce retailers. Nevertheless, this has a detrimental impact on the company’s profitability as the business generates lower returns compared to the branded PayPal checkout experience.
During a conference call with analysts, CEO Dan Schulman expressed confidence in the company’s strategy, emphasizing the focus on driving branded checkout as the top priority. Schulman explained that branded checkout is the highest-margin service and the company’s core focus for over a year.
PayPal announced a growth of 12% in payments volume, reaching $354.5 billion, exceeding analysts’ expectations of $349.5 billion as per a Bloomberg survey. This notable increase in payments volume played a significant role in boosting firmwide revenue and resulted in an upward adjustment of the adjusted earnings per share forecast for the full year.
Similar to other e-commerce companies, PayPal faced a decline in volume on its platforms as consumers returned to in-store shopping and spending slowed amid significant levels of inflation. To address the impact of the macroeconomic slowdown, PayPal reduced its workforce by 2,000 employees in the first quarter, incurring $117 million in restructuring costs.
In addition, PayPal has been contemplating the sale of a substantial portion of its $7.5 billion loan portfolio. This follows a previous sale of loans and receivables to Synchrony Financial in 2018.
To mitigate losses stemming from changes in underwriting standards for business loans, PayPal has set aside additional provisions and tightened its underwriting criteria. CEO Dan Schulman plans to step down at the end of the year, and the company has initiated a search for his successor. Meanwhile, PayPal is focusing on increasing engagement among existing customers rather than solely acquiring new users.
The first quarter showed positive results, with transactions per active account rising by 13% to 53.1. Firmwide revenue increased by 10% to $7.04 billion, and adjusted earnings per share reached $1.17, surpassing the average analyst estimate of $1.10.
Despite the encouraging start to the year, PayPal remains mindful of the dynamic macroeconomic environment and remains focused on execution while adapting to market conditions.
PayPal Witnesses Growing User Engagement and Buy Now, Pay Later Acceptance
PayPal’s latest financial update highlights heightened user engagement and the expanding acceptance of buy now, pay later alternatives. The company recorded a 1% year-over-year growth in active accounts, totaling 433 million, along with 35 million merchant accounts. Additionally, transactions per active account experienced a notable increase of 13%, reaching 53.1.
The combined value of all payments processed amounted to $355 billion, reflecting a 12% growth after adjusting for foreign exchange fluctuations. Peer-to-peer total payments, which encompass transactions made through PayPal, Venmo, and Xoom, rose by 2% to reach $91 billion. Notably, Venmo experienced a significant surge in volume, jumping by 9% to $62.7 billion.
CEO Dan Schulman highlighted the acceleration of PayPal’s branded checkout by 6.5% and unbranded checkout volume by 30% on an FX-neutral basis. Schulman acknowledged the challenges ahead but noted positive trends in user engagement and expanding market opportunities.
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