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PayPal's Venmo had a break-out quarter with payments surging 80%

Key Points
  • The company saw $19 billion in payments volume through its peer-to-peer lending app Venmo in the fourth quarter — an 80 percent increase year-over-year.
  • PayPal is on track to do another $100 billion in payment volume through Venmo this year. But it won't be in the black for at least the next quarter or two, PayPal's CFO says.
  • "Perhaps the biggest positive of the quarter was management's commentary around progress on the company's Venmo monetization efforts," Raymond James analyst John Davis says.
The Ebay Inc. Venmo application (app).
Andrew Harrer | Bloomberg | Getty Images

Venmo is getting closer than ever to becoming a money-maker for its parent company, PayPal.

The peer-to-peer payment app notched a record fourth quarter, with growth in key measures as well as in the number of people using Venmo to buy something, instead of just sending money to friends.

The company saw $19 billion in payment volume through Venmo in the fourth quarter — an 80 percent increase year over year, PayPal CEO Dan Schulman said on Wednesday's earnings call. For the full year, Venmo processed $62 billion in payments, a 79 percent increase from a year earlier. And the company is on track to reach $100 billion by the end of 2019.

"We don't want to get again too far ahead of ourselves, but we're pretty pleased with what we're seeing on Venmo — it's really going from strength to strength," Schulman said on a call with analysts.

The app has annual revenue of more than $200 million, Schulman said. But that's not quite enough for Venmo to make money. The company has not given an exact target date for profitability, but the company's chief financial officer said it won't happen right away. 

"The next phase for us is to get Venmo to break even. And that's not something that's going to happen in the next quarter or two, but there's line of sight to that with what we're doing," PayPal CFO John Rainey said on the call.

Similar to some of PayPal's services, Venmo started out as a way to transfer money to friends. It became a part of PayPal through the 2013 acquisition of payment processing start-up Braintree.

Last quarter, Venmo's revenue was split evenly between instant "Cash Out" and commerce-related items. "Cash out" allows users to transfer a Venmo balance to a bank account within minutes using a Mastercard or Visa debit card, with a 25 cent fee for each transfer.

Venmo's partners helped boost the commerce side, especially through food ordering services, like Grubhub and Seamless and Uber Eats, PayPal said. Uber and Hulu were also added to the partners list last year. The number of people using these services, and making a "monetizable transaction" grew from 24 percent to 29 percent quarter over quarter.

Elsewhere, PayPal's results were relatively disappointing. Its $4.23 billion in revenue was slightly below what Wall Street expected but earnings were slightly better. Shares fell more than 4 percent after the results, and traded lower into Thursday.

PayPal's former parent company eBay continues to be a challenge, with flat volume growth last quarter. Venmo's total payment volume surpassed the volume PayPal processed from eBay, Schulman said.

Wall Street reactions were mixed. Raymond James maintained an outperform rating on PayPal shares but lowered its price target to $104 from $108 after the results.

"Overall, although we had expected slightly better, the somewhat weaker results were largely due to further deceleration at eBay and therefore we are not overly concerned," Raymond James analyst John Davis said in a note to clients Thursday. "Perhaps the biggest positive of the quarter was management's commentary around progress on the company's Venmo monetization efforts."