PayPal: Venmo Keeps Growing In Q2

| About: PayPal Holdings, (PYPL)

Summary

Venmo processed over $4 billion to person-to-person payments, roughly 140% growth from the second quarter of last year.

Venmo added eight more applications to Pay with Venmo.

PayPal and Venmo users with Visa debit cards linked to a bank account will also be able to move money instantly in and out of the services.

Late last month PayPal (NASDAQ:PYPL) reported its second quarter results. Shares of the online payments leader traded immediately to the downside following the announcement. Shares had traded near 2016 highs at $40 per shares heading into the quarter. Today, PayPal shares are trading at $37.24 per share, up by about 2.8% this year.

In June, I wrote an article PayPal's Venmo is Winning Mobile Payments which highlighted the company's valuable Venmo application. If you are not familiar, Venmo is the leading mobile payment smartphone application for Millennials. Personally, I use Venmo each and every day. In a matter of seconds, you can use Venmo to exchange money between friends, family, and strangers. PayPal acquired Venmo through its Braintree acquisition.

Mobile payments are a huge opportunity for growth for PayPal, and for Venmo. After all, eighty-seven percent of the U.S. adult population has a mobile phone, and seventy-one percent of mobile phones are smartphones. And, 39 percent of smartphone users have used their phones for mobile banking in the last year. And, sixty-seven percent of the unbanked population has access to mobile phones.

Venmo takes the best features from PayPal, and makes it easy for users on the go. PayPal earnings release was one of my highly anticipated releases this season. I was waiting to see updated performance data on Venmo in the second quarter.

Venmo experienced rapid growth during the second quarter. In the second quarter, Venmo processed over $4 billion to person-to-person payments, roughly 140% growth from the second quarter of last year. And, up from $3.2 billion in payment volume in the first quarter of 2016.

I was excited to see that Venmo rolled out even more business facing partnerships. In the second quarter, Venmo added eight more applications including Parking Panda, Priv, Wish, Box, App Market, and Pashmark. Venmo allowed an additional 2.5 million users get access to its Pay with Venmo Pilot. In addition, management confirmed that the Pay with Venmo technology will be available to all users by the end of the year. Venmo's focus on merchant facing payments is important to the long term thesis. By adding merchants and adoption to Pay with Venmo, Venmo will become a high earning asset for the company. I predict that Pay with Venmo is going to beat Apple Pay down the road.

Management reported that Venmo was the second largest driver of account growth for the company. On an overall basis, PayPal now has over 188 million active accounts.

I was very excited to see the partnership between PayPal and Visa (NYSE:V). Inside of the partnership announcement, we learned that PayPal and Venmo users with Visa debit cards linked to a bank account will also be able to move money instantly in and out of the services. This is awesome news for daily Venmo users like myself.

Hopefully, the Visa and PayPal partnership will expand to allow Pay with Venmo to be locations that accepts Visa contactless transactions. It would be even cooler to see the companies work together on a Bill Pay feature to include in the Venmo application.

Overall, the second quarter was very positive for Venmo, and PayPal. I still believe that PayPal is the best way to invest in online and mobile payments. Specifically, PayPal's acquisition of Venmo puts the company as the leader in mobile payments. I believe that PayPal's Venmo asset is undervalued by the market, and that Venmo will appreciate dramatically in the years to come.

Disclosure: I am/we are long PYPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.