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Venmo logo is seen on an Android mobile phone.
- PayPal's revenue forecast for the fourth quarter fell short of Wall Street expectations, sending shares down 5%.
- But analysts were optimistic about the future of PayPal's Venmo business, and found a bright spot in the payment app's growth over the past year.
- Venmo is not profitable. Still, analysts say its monetization has improved, and one noted the number of users who have made a monetizable transaction rose 5% since the prior quarter.
- Watch PayPal trade live here.
Amid the market's punishing reaction to PayPal's disappointing fourth-quarter results on Thursday, Wall Street analysts were laser-focused on one part of the report they found to be a bright spot: Venmo.
PayPal said in its investor presentation the payment app is on track for monetization, and that its volume increased 80% in one year - approximately $19 billion in transactions were made in the fourth-quarter alone.
"The company noted that monetization events are split evenly between Instant Transfer and other services (Pay with Venmo and Venmo Card)," Jefferies analyst John Hecht told clients in a research note out Thursday under the headline, "Venmo Showing no Signs of Slowing."
"We also highlight the fact that Venmo's TPV now exceeds the TPV from EBAY, giving us further comfort that the continued transition away from EBAY remains very manageable," they added, referring to the platform's total payment value.
The company fell short of Wall Street's expectations when it reported quarterly and full-year earnings on Wednesday afternoon. PayPal said its revenue miss was due in part to slower-than-expected growth on eBay and foreign exchange rate-related challenges. Shares of the online payment company slipped nearly 5% Thursday.
To be sure, Venmo is running at a loss. Just 29% of its users made a monetizable transaction in the fourth-quarter, up from 24% in the third-quarter. In other words, the vast majority of transactions executed between Venmo users are money-losing for PayPal.
The company has attempted to remedy this with monetization initiatives like Instant Transfer - a feature that charges users a 1% fee - and Pay With Venmo, which can be used as a payment option at select companies like Uber.
While the app's monetization efforts have improved, "these revenues continue to run at a loss, with management's current goal to get Venmo breakeven, noting this was not something that would occur in the next few quarters," Thomas McCrohan, managing director at Mizuho, told clients Thursday.
Some analysts taking PayPal's pulse put it more plainly. "Venmo Looks Good," Cantor Fitzgerald analyst Joseph Foresi wrote.
"Venmo continues its impressive growth and monetization efforts. We believe PayPal can grow at roughly double the market average, supporting its premium to the group."
Oppenheimer, meanwhile, bumped up its price target on PayPal shares from $95 to $100, and maintained its "outperform" rating. Analysts Glenn Greene and Andrew Hummel pointed specifically to Venmo's monetization progress.
PayPal shares have gained 9% over the past 12 months, and 138% over the past three years.
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