PayPal Holdings witnessed impressive growth in its user base in 2018, with a reach of 254 million active accounts as reported in its 2018 third quarter earnings.
What enabled this compelling growth?
Paypal's increasing customer base indicates a growing network effect: the more value it has for existing customers, the more new users join in. The more customers use PayPal, the more merchants will feel compelled to accept this as a mode of payment; as more merchants accept this as a mode of payment, the more customers will use this, and in this way the cycle goes on. This rising network effect is evident in the company's third quarter earnings report, in which the average account that had used PayPal is 36.5 times over the last year, a 9.5% year-over-year increase.
This rapid growth in PayPal’s users and sales reflect the company’s unique positioning in digital payments. For example, Apple also has digital wallet called Apple Pay. But if someone wants to direct funds to a friend’s account, that person must also be an Apple user. These limiting factors, also found in Samsung Pay, Alphabet’s Google Pay and Amazon.com’s Amazon Pay, are eliminated by PayPal helped it increase its customer base.
Paypal's third quarter earnings report saw its revenue grow to $3.68 billion, a 14% year-over-year increase, and adjusted earnings per share (EPS) rose to $0.58, a 26% year-over-year increase. PayPal is now set to finish the year with adjusted EPS in a range of $2.38 to $2.40, which would give it an adjusted P/E ratio of 38.1.