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Why PayPal’s Expenses Rose in 4Q17

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Mar. 5 2018, Updated 9:01 a.m. ET

Expense growth slowed down in 4Q17

It cost more to run PayPal (PYPL) in 4Q17 than in the same quarter a year ago. The company’s costs and expenses rose 16% YoY (year-over-year) to $2.9 billion in 4Q17. But the increase in expenses in that quarter was slower than in the previous three quarters. PayPal’s expenses rose 21.7% YoY in 3Q17, which followed an increase in expenses of 17.4% YoY in 2Q17 and 19% YoY in 1Q17.

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Cost drivers

Driving up PayPal’s expenses in 4Q17 were costs associated with restructuring, marketing, R&D (research and development), and transactions. Transaction expenses rose 32.7% YoY to $1.3 billion in 4Q17. The company didn’t incur any restructuring expenses in the year-ago quarter, but in the latest quarter, it recorded $92 million in restructuring expenses.

PayPal’s marketing expenses increased 29.6% YoY to $328 million in 4Q17, while R&D costs rose 24.2% YoY.

PayPal’s former parent eBay (EBAY) saw its R&D costs rise 8.6% YoY in 4Q17. Amazon (AMZN) recorded a 40% YoY increase in its R&D expenses that quarter.

Funding innovation

The increase in R&D budgets for these companies seems to signal investments in innovation as they seek to differentiate themselves from the competition and expand into new business areas. PayPal is eager to expand beyond its payments roots into lending, saving, and investing. Amazon is investing in technology to make its delivery system more efficient and strengthen its advertising business as it steps up competition with Facebook (FB) and Google (GOOGL) for digital advertising funds.

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