The Venmo Phenomenon. Is it possible to make money on money transfers via a mobile phone?

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PayPal’s Venmo mobile payment service has begun to live up to expectations. Analysts at Barclays Capital positively assessed the company’s prospects and raised the forecast price of PayPal securities

PayPal’s efforts to monetize the company’s Venmo mobile payment service have begun to pay off. This is indicated by both the company’s results and the comments of its management, analysts at Barclays Capital noted. The bank raised the target price of PayPal securities and recommended buying the shares.

Plus 78% in three months

Until recently, Venmo’s monetization was talked about in more hypothetical and less measurable terms. Recently, however, everything indicates that things have gotten off the ground. The company’s latest quarterly earnings have impressed investors enormously, with PayPal surpassing earnings expectations in the third quarter. The Venmo results were particularly dynamic.

In three months, the total volume of payments for the service grew by 78%, to $ 17 billion. Despite the fact that this is not a very significant amount in the total volume of PayPal payments, the dynamics, according to the CEO of PayPal, Dan Shulman, is encouraging. “Our monetization efforts seem to have reached a tipping point,” Schulman said.

“24% of Venmo users are now involved in the monetization process,” said the CEO on the day the reports were released on October 18 last year. “Last quarter there were 17%, and in May 13%.”

Remittances per billion

In September, the number of monthly active users of “Pay with Venmo“, which allows you to pay on sites and in applications, grew by 185% compared to August. And the growth of the same indicator for the Venmo debit card during the same period was about 320%. In addition, over $ 1 billion in instant transfers were made in September.

These results allay fears that arose in early 2018 after The Wall Street Journal reported that PayPal’s empowerment was causing Venmo to suffer more losses than expected.

According to The Wall Street Journal, Venmo had an operating loss of about $ 40 million in the first three months of 2018, nearly 40% more than the company’s budgeted amount. And the so-called percentage of losses from transactions, which includes losses associated with fraudulent transactions, rose from 0.25% in January to 0.4% in March last year.

“We were not surprised to hear of an increase in fraud losses at Venmo, given that the company is experimenting with new features for which it is testing risk models. We do not think that the events described in the article in the future will significantly affect the level of losses from fraud, “- noted in this regard analysts at Barclays Capital.

What are the prospects for Venmo?

“Venmo’s perspective is much more than just accepting payments at the point of sale. These include a wide range of e-commerce opportunities, ” said Paul Kondra, an analyst at Credit Suisse.

“We believe Wall Street did not anticipate Venmo’s colossal growth potential for 2019 and 2020 . When we combine all three of the company’s main sources of monetization (instant deposits, Venmo debit cards, and ‘Pay with Venmo’), we see a significant increase in revenue and profits that are not yet included in the consensus estimates, “Barclays Capital believes.

What will happen to the shares

PayPal shares are up 17% since the last quarterly report; now they cost around $ 90 apiece. Taking into account the good prospects for Venmo, analysts at Barclays Capital raised the target price of the shares of the parent company PayPal from $ 110 to $ 115, recommending them for purchase.

According to experts, in the current quarter, PayPal will again show good growth in the volume of payments. At the same time, the company will overtake the sector in terms of growth due to extremely active activity in digital commerce and in fast-growing markets outside the United States, as well as monetization of Venmo and an increase in the number of users as a result of partnerships with Visa, Mastercard, and banks, analysts are convinced.

Consensus Refinitiv recommends buying PayPal shares, expecting it to rise 9.67% over the coming year to $ 99.47. Of all the analysts included in the consensus, 38 people advise buying, keeping eight. Nobody recommends selling.


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