PayPal delivered revenue growth of 12% (13% in constant currency) in Q1, with revenue growth of 17% through February and 3% growth in March. April revenue growth however recovered sharply to 17%.
Total payments volume (TPV) through PayPal platforms grew by 18% from the year-ago period to $191 billion. About 20.2 million net new active accounts were added in the first quarter, including a one-time addition of 10.2 million in January due to the acquisition of Honey, a browser extension that aggregates and automatically applies online coupons on e-commerce websites.
Adjusted non-GAAP earnings were flat at 66 cents per share and were short of analysts’ forecast of 77 cents. Cash flow from operations totaled $1.5 billion with $1.3 billion in free cash flow up 45% and 60% respectively from Q1 2019.
PayPal’s cash, cash equivalents, and investments totaled $12.6 billion as of 31 March with long-term debt totaling $8 billion highlighting the strength of the balance sheet. PayPal also utilised $3.6 billion to acquire Honey during the quarter.
Looking ahead to the second quarter, PayPal expects 15% revenue growth on a currency-neutral basis and 15% growth in adjusted earnings per share. It also projects 15 million to 20 million net new active accounts for the quarter this despite the Covid-19 pandemic.
Despite the undoubted quality of PayPal and excellent growth prospects, the company trades on an extremely elevated valuation of 40x free cash flow. Although it remains strategic holding in our global portfolios, we think the current valuation is simply too rich to add to the position.