Venmo is finally venmo-ing big revenue to its less cool parent

Venmoing you now.
Venmoing you now.
Image: Reuters/Marcos Brindicci
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Venmo, the mobile payment app that lets roommates split rent and friends chip in for pizza, became a verb almost as soon it moved out of beta seven years ago and began attracting millennial users in droves. No one was sending money around to anyone anymore. They were venmo-ing it.

The digital payment giant PayPal bought the fast-growing brand in 2013. It was a lot like its own, except the newer platform doubled as a social site that allowed users to publicly announce when they had venmoed one another for brunch or Coachella tickets.

Six years later, while many millennials may still not be aware of the PayPal connection, their cherished app is finally generating solid revenue for the larger, older, less cool company. Within a few quarters, it may even break even, according to PayPal CFO John Rainey.

During an earnings call with investors yesterday (Jan. 30), in which Venmo’s nascent monetization agenda was described in broad strokes, Rainey confirmed that Venmo was not in the black yet. But its progress—from a service that was costing the company to one it now says is poised to bring in annual revenue of $200 million—was a bright spot in PayPal’s otherwise lackluster fourth quarter and full-year results.

From free to fees

Venmo’s early popularity was probably fueled not only by its social function and dead-simple mobile interface; it also was free. That’s still mostly true, but a year ago, it launched an Instant Cash Out option: For a fee of 1%, customers can now instantly withdraw from their Venmo balance and return the funds to their bank account, rather than wait for one to three business days for the transaction to clear. And, “surprising no one” as Payment put it, Venmo launched a Venmo debit card last summer, several months after making it possible to venmo millions of merchants, like Uber, GrubHub, Abercrombie, or Hollister, and not just friends. Together, these fee-based services have created a projected revenue run rate of $200 million for PayPal, with 29% of Venmo transactions now “monetizable,” up from 24% last quarter, and 17% in the quarter before that.

Venmo users are also being incrementally linked into a wider payment network, the PayPal mothership, which now serves 267 million active users. In short, Venmo has momentum. In the the fourth quarter of 2018, Venmo’s total payment volume reached $19 billion, growing 80%. For the full year, Venmo’s volume increased 79% with $62 billion in payments processed in 2018. The company says it’s on pace for Venmo to drive almost $100 billion in total processing volume in 2019.

Though the slow creep of fees may escalate as PayPal looks to Venmo for more growth and diversification, it’s arguably unlikely to dent Venmo’s popularity. These days, newlyweds are asking family to “just venmo me” to send a gift, and skip the physical currency. The app is so widely used that its lexicon has inspired insider jokes.

That said, Venmo is still a tiny slice of PayPal’s empire, and its newfound traction wasn’t enough to stop the share price from sliding on news of slow growth in PayPal’s core business, which the company attributed to shrinking merchandise volumes at former parent company eBay.

PayPal reported $4.23 billion in overall revenue last quarter (and $15.5 billion for 2018), missing Wall Street expectations for the first time in more than three years.

Investors also remain concerned as they look ahead to 2020, when PayPal’s exclusive relationship with eBay will end. Share prices have dropped about 4% since the latest earnings report was released, and the stock is now trading at just under $88, down from a high yesterday of $93.