Surging dollar hits PayPal's revenues

PayPal Holdings Inc, a global payment processor, has posted quarterly revenues below the market analysts' forecasts.

The strong US dollar has impacted the transaction volumes in China and Europe in a more negative way as outside US markets account for over half of the revenues. The overall revenues for the third quarter rose 14 percent and if dollar impact was excluded then the growth rate would be 19 percent.

PayPal's revenues during the third quarter ending September 2015 rose 14 percent to $2.26 billion as against the forecast of $2.27 billion.

PayPal shares dropped 5.6 percent to $34.60 on Nasdaq. PayPal stock has been listed on Nasdaq in July for the second time. After the encouraging results of eBay, investors were expecting strong numbers from PayPal. Since the revenues fell short of market forecast, the shares turned weaker on Nasdaq.

Market analysts hold the view that foreign exchange (forex) impact has been larger than expected.

PayPal was also anticipating a major impact of the US dollar on its revenues for 2015. Excluding the impact of US dollar, PayPal was expecting the overall revenue growth in the range of 15-18 percent for 2015 full year.

The first quarterly results from PayPal after splitting eBay discourage investors. The transaction margins of PayPal dropped to 62.3 percent during the third quarter from 63.1 percent in the previous corresponding period.

The number of active accounts rose 10 percent to 173million and total payment volume increased 20 percent to $69.74bn. The mobile transactions rose 38 percent to 345million. Earnings per share (EPS) were at 31 cents per share higher than the average forecast of 29 cents.

The sluggish economic conditions in China and Europe were major reasons for shrinking international payment transaction volumes, according to PayPal. Generally, when Americans buy in China or Europeans buy in the US, PayPal generates highest rates.

Naturally, the surging dollar would reduce the demand from Europe and supply from China, said analysts.

The net income of PayPal rose 28.6 percent to $301 million or 25 cents per share during the third quarter.

Dan Schulman, President and CEO of PayPal, said: "PayPal is entirely focused on digital payments and transforming money for people around the world. This clear focus and our strong value proposition allowed us to deliver strong financial results in the third quarter."

Other payment service providers such as Stripe Inc, Square Inc and Apple Pay are posing stiff competition to PayPal. Led by Twitter CEO Jack Dorsey, Square is also going for initial public offer (IPO).

Schulman further said that PayPal was operating in a time "when change is sweeping through the financial services industry driven by the rise of mobile technology and the acceleration of money becoming digital. These two massive trends play directly to our strengths and we are leveraging this transformation to extend and accelerate our lead."