PayPal Announces Estimate-Beating Revenue in Third Quarter

paypal

The revenue of PayPal Holdings Inc grew in the third quarter at a level higher than predicted by analysts, helped by continuing stable growth in the number of active customer accounts over the past few years.

Net revenue for the quarter was up to $2.67 billion, according to a release from the online payment processor Thursday. The figure represents an increase of 18 percent on the revenue for same period a year ago.

The third-quarter revenue slightly bettered average estimate of $2.65 billion from analysts.

PayPal said the number of active customer accounts jumped 11 percent, while the number of transactions processed gained 24 percent. It now boasts 192 million active accounts, up from 173 million in 2015. Total payment volume in the quarter jumped to $87 billion, up 25 percent from a year ago.

The number of active customer accounts has been steadily growing over the past five years, as reported by CNBC. Aside its core service, the payments company attributed the growth mainly to Venmo. The peer-to-peer payment platform handled $4.9 billion in transactions during the third quarter – that was about 131 percent more than the figure for same period last year.

“We are further expanding the ubiquity and value of the PayPal brand and moving deliberately towards achieving our vision of becoming an everyday, essential financial service for people around the world,” PayPal President and Chief Executive Dan Schulman said.

The report also identified money transfer service Xoom as a driver of growth in active customer accounts.

PayPal reported adjusted earnings of $425 million, or 35 cents a share, an improvement on profit of $377 million, or 31 cents per share, a year ago. The earnings were in line with Wall Street expectations.

Shares of the popular payment processor were trading at more than 3 percent higher in after-hours trading following the announcement. The stock closed at $40.09 during regular trading on Thursday.

The PayPal results were also boosted by the resolution of the faceoff the company had with the world’s leading card networks. In the quarter, it reached agreement with both Visa and MasterCard that would enable users to choose its service as an option when paying for purchases with their smartphones. The deal with Visa allows debit users to instantly move money on PayPal and Venmo accounts.

The online payments firm expects total revenue in the range $2.92 billion to $2.99 billion during the current quarter, which will represent growth of 14 percent to 17 percent. It has also forecast between 40 cents and 42 cents in adjusted earnings per share.

PayPal has also slightly boosted the lower threshold of its revenue guidance for the current fiscal year. It is now $10.78 billion, up from the previous $10.75 billion. The upper revenue range for the year remains at $10.85 billion.

Edward Jones analyst John Olson said in a note that his company expects peer-to-peer transactions handled by Venmo to grow considerably in the coming years. He predicted transaction volume would rise to roughly $84 billion in 2019, according to CNBC. The peer-to-peer payment platform processed $14 billion in transactions in 2014.

Prepaid Credit Cards Bigger Problem Than Bad Credit Loans for Consumers

prepaid credit cards

Previous studies have suggested that payday loans were one of the biggest problems facing impoverished and unbanked households in the United States. With these short-term, high-interest loans, the most vulnerable would enter into perpetual debt cycles that would be difficult to escape.

A new report now suggests that prepaid cards play a bigger factor for these homes than payday loans.

The Federal Deposit Insurance Corporation (FDIC) published the results of a new survey on Thursday that discovered that 10 percent of all American households are regularly using prepaid cards. This is up from 7.9 percent in 2013. In the 12 months prior to June 2015, more than one-quarter (27 percent) of U.S. households reported using a prepaid card. This is also up from 22 percent in 2013.

And these numbers are a lot higher than experts had anticipated before the release of the results.

Rather than maintaining a basic bank account that comes with receiving deposits, making purchases and saving for the future (even with low interest rates), these individuals are using prepaid cards.

What’s going on in the U.S. today? FDIC Chairman Martin Gruenberg said more research is needed.

For now, experts are alluding to income volatility, criminal records, bank fees, bad credit, language barriers and poor fiscal management as potential reasons for millions of Americans being unbanked.

More than half of unbanked Americans think they don’t have enough money to start a bank account.

In terms of bank fees, Americans forked over more than $11 billion fees, including overdrafts and non-sufficient fund (NSF) penalties. But oftentimes these fees can be much lower than unconventional alternatives, such as businesses offering payday loans, check cashing and other services not offered by banks.

New technology and innovations have made prepaid cards a regular financial management tool. In recent years, prepaid cards have provided users with features similar to that of a bank checking account. This has made prepaid cards attractive, but has also drawn the corn of the Consumer Financial Protection Bureau (CFPB), which established new comprehensive rules for prepaid cards.

According to the same FDIC study, one-fifth of Americans are underbanked. These are individuals that have bank accounts but also utilize payday loans, check cashing services and money orders as a means to get a loan with bad credit. As previous studies have found, the unbanked and underbanked are doling out unnecessary amounts of money to pay for these types of services. This erodes their hard-earned incomes and sends them deeper into poverty. The CFPB has been looking at getting more impoverished communities banked.

In response to the study, the credit union industry says it’s time local and state governments give credit union facilities more opportunities and leverage to open up in unbanked areas of the country.

“While this study did not specifically include credit union data, NAFCU knows that there are many consumers that do not access traditional banking channels, including not-for-profit member-owned credit unions,” said NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt in a statement.

“In fact, NAFCU has been pressing for field of membership improvements so that credit unions can reach more of the unbanked. In particular, we support regulatory changes to the NCUA’s field of membership rules and H.R. 5541, Financial Services for the Underserved Act of 2016, so that credit unions can reach the underserved.”

Until then, a large number of Americans will depend on payday loans, prepaid cards and money orders to get by. With the CFPB cracking down on these services, it won’t be for much longer.

Lawmakers Quiz Ariad on Leukemia Drug Price Hike

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Ariad Pharmaceuticals has become the latest drug maker to be questioned on its drug pricing practices after two lawmakers asked it to explain huge hikes in the price of a medication used in treating leukemia patients.

Sen. Bernie Sanders (I-Vt.) and Rep. Elijah Cummings (D-Md.) sent a letter to the drug maker on Thursday asking it to provide justification for more than $80,000 hike in the price of the drug Iclusig, according to NPR.

The price of the drug, used to treat patients with chronic myeloid leukemia, has jumped to nearly $200,000 per year. It has been hiked on four occasions in 2016.

The lawmakers are not only complaining that the price of Iclusig has repeatedly been increased this year, but also that the dose has been reduced at the same time. This essentially raises the price paid for the drug further.

In the letter directed at Ariad Chief Executive Paris Panayiotopoulos, Sanders and Cummings accused the drug maker of “outrageous sales tactics” and being concerned more with profit-making than the needs of patients.

Ariad said it knows that prices of oncology drugs are pricey. But it tried to justify the price hikes on the basis that the drug is very efficacious and caters to a very small group of patients whose needs are often not satisfied.

“Iclusig is the first drug that we have brought to the market after years of risk taking and research, and it serves a very small and seriously ill group of cancer patients,” the drug company said in a statement.

The list price for a year’s worth of supply of the drug has risen from $114,960 in 2012 up to $198,732 this October, according to Truven Health Analytics data.

CNBC reports that the drug was originally approved by the Food and Drug Administration (FDA) in December 2012 for the treatment of a larger group of patients. But the drug was later temporarily taken off the market following complaints of life-threatening blood clots among other side effects. It was re-introduced in late 2013 for a smaller subset of chronic myeloid leukemia patients.

The FDA approves the use of Iclusig only for individuals with chronic myeloid leukemia who have developed resistance to other treatment options due to a genetic mutation.

Saunders recently vowed to increase pressure on drug companies so as to force them to reduce medication prices across the United States, where it is believed patients are being made to pay the most. A tweet from the senator, who represents Vermont, on Iclusig price hikes last week sent the shares of Ariad tumbling by around 15 percent.

The shares slumped by up to 7 percent following the announcement of the letter, whose receipt has been acknowledged by Ariad.

The pharmaceutical company has said its drug pricing is a reflection of how much money it spends on research and development. It said the prices are also influenced by its commitment to “the very small, ultra orphan cancer patient populations that we serve.”

Ariad stated that it disbursed 143 percent of its revenue last year for research and development efforts geared towards rare cancer treatments.

Mylan, Valeant and Turing are some of the pharmaceutical companies that have also been questioned by lawmakers over their drug pricing practices.

Ericsson Post Third-Quarter Loss on Slowing Demand

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Swedish telecommunications equipment company Ericsson on Friday revealed that it recorded a loss in the third quarter as a result of weak demand for its products and services.

For the quarter ended Sept. 30, Ericsson said in a statement that it recorded a net loss of 233 million Swedish kronor ($26.2 million), a massive reverse of the 3.08 billion kronor net profit posted in the same period a year ago.

The loss in the quarter was more than double what analysts had expected. Average estimate from analysts was for a 112 million kronor loss, according to Bloomberg.

Some investors were shocked last week when Ericsson issued an earnings warning on the basis of a 14-percent dive in third-quarter sales to 51.1 billion kronor, down from 59.2 billion kronor a year earlier. Its shares slumped by roughly 20 percent after that announcement.

Fall in sales of network equipment contributed significantly to the drop in revenue, the company said. Their sales were down by 19 percent.

The Swedish telecom equipment giant has been greatly hurt by the drop in mobile service providers’ spending on latest-generation 4G networks, with most upgrades already completed last year. Competition has also become more intense from Huawei Technologies Co. and Nokia Corp., with the former already making inroads into its domain in Europe.

Slumping demand in countries such as Russia and Brazil has had significant impact on Ericsson’s revenue. The company has been forced to embark on cost-cutting measures, including job cuts, to reduce operating expenses.

“The negative industry trends from the first half of 2016 have further accelerated,” Interim Chief Executive Jan Frykhammar said. “We will implement further short-term actions mainly to reduce cost of sales, in order to adapt our operations to weaker mobile broadband demand.”

Frykhammar became Ericsson CEO after former holder Hans Vestberg was ousted in July for failing to improve on the performance of the company. The current holder has not kept it secret however that he does not want the job on a permanent basis, reiterating that on Friday.

Some analysts believe lack of a permanent chief executive is one of the major problems facing Ericsson. They think it might not be able to improve on its business challenges until it gets one.

Two of the company’s biggest investors Industrivarden AB and Investor AB have also commented on the empty CEO seat issue. Investor Chief Executive Johan Forssell stated this week that the main priority before the Swedish telecom equipment maker is to find a new chief executive, as reported by Bloomberg.

Ericsson shares, which were down about 49 percent this year, shed more than 3 percent on Friday.

Moody’s Investors Service has downgraded the debt of the company. Analysts say it may need to cut dividend to save cash and shore up its credit ratings.

It was only the second time in a decade that Ericsson has posted a loss. The first was in the four quarter of 2012 and was due to an 8 billion kronor write-down on the alliance with STMicroelectronics NV.

The Stockholm-based company has its sight set on the development of next-generation, 5G wireless networks. However, analysts say the rollout of the super-fast networks are still years away.