PayPal: Time To Go All In

Seeking Alpha2021-11-22

Summary PayPal has fallen over 30% since its ATH due to poor guidance and increased competition concerns. I argue that PayPal is still on track to achieve its long-term goals, and competition, albeit...

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精彩评论

Alagu
2021-11-23
Alagu
Warning, seekingalpha has bags. Let them unload before we load up. There is plenty of time to buy pypl because this is not going anywhere.
Vanillin
2021-11-22
Vanillin
I still think Paypal is a good long term hold.
investforget
2021-11-22
investforget
Could bottom out
Barbarazhao
2021-11-22
Barbarazhao
Hope so
GoG
2021-11-22
GoG
K
- GoG:
  k
DMC8
2021-11-22
DMC8
Like pls

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(PYPL) and concluded that our target price of $425 for 2025 made the $266 purchase give a compound return of 10.5% per year. At the time, we were forecasting revenue, earnings, and PE ratios to calculate the target price.\nAlthough our forecasted PE ratio based on its relation to Earnings suggested the price was a little high for that point in time, it seemed that the market was granting the company a higher valuation given its remarkably consistent track record.\nIt took very little smoothing to set historical revenue growth at a consistent 17.9% per year, and as for the earnings margin, net income was very close to 13.55% of revenue almost every year. The only two exceptions were one negative, in 2014, and one positive, in 2020, where the margin was 19.6%.\nAs the year 2021 has progressed,PayPal has dropped significantly, all the way down to $200. At this price, the $425 target for 2025 would give you a compound annual return of 20.1%. I can think of three possible explanations for this collapse:\na) The price was ahead of its time, and 2020 over performance got investors thinking growth had accelerated and that the price would go higher than we were forecasting. Ultimately, an investment relying on growth that has not yet materialized requires higher returns, and if the company is growing 18%, the investor wants to make at least 18% on their investment.\nb) There is a perceived risk of earnings growth slowing down significantly based on the company's performance after looking at financial reports from the first three quarters of 2021.\nc) There is a perceived risk of growth slowing down significantly due to factors outside of the company's financial performance, based on a qualitative analysis of the company and its addressable market.\nIf the correct answer is A, this is a great investment. If the logic feels compelling enough you should buy now and enjoy your 20% return over the years. I am going to focus on the other two scenarios, where we need to think about whether the business itself is actually in trouble.\n2021 Financial Performance\nOur previous analysis onPayPal was based on revenue and net income, as per GAAP figures up to 2020. Here I am going to look at the results of the first three quarters of 2021 to see if the results are disappointing.\nFirst off, we have revenue growth. Indeed, quarter on quarter it doesn't look great, but this is not uncommon inPayPal's history of seasonality. If you look at the chart below, you can see that revenue grows the most in the fourth quarter, always drops in the first (QoQ), and has mixed results from the first to the third. Also, to continue on the 17.9% growth trend, revenue in the fourth quarter would only have to be %6.65 billion less than 8% higher than in the third quarter.\nSource: Author's work based on financial reports. Items in $millions.\nIt appears that all is good with revenue growth so far and 2021 looks to deliver once again on the near 20% revenue growth figure. Let's take a look at earnings. So far in the first 3 quarters of 2021, earnings have been, just as in 2020, much higher than the previous trend of 13.5% of revenue. So far, earnings are between 17.5 and 19% of revenue, with an average of 18.3%. It is true that this was 19.6% in 2020, but it also means that we can no longer reasonably consider 2020 an anomaly in that respect.\nSource: Author's work based on financial reports. Items in $millions. 2021 figure is an estimate based on first 3 quarters.\nLooking at these figures, the only thing that could worry investors is year-on-year growth rates. If you look at the table below you can see the growth rates of revenue and earnings for Q3 2021, YTD or YoY and with the 1-year growth rate or the 2-year CAGR.\nSource: Author's work based on financial reports.\nThis gives a clue of what might be the problem, as year-on-year growth rates in the third quarter look significantly worse than average, especially in earnings growth. However, if you take into account that 2020 Q3 was an exceptionally good quarter, it seems likePayPal is being punished for how good results were in 2020. If you look at the 2-year growth, results seem great, especially in earnings (it is also true that Q3 2019 was exceptionally bad, but one argument is as valid as the other).\nTo illustrate this point, imagine that net income had been lower in 2020. The chart below contains the same figures as the one before, except that 2020 net income has been arbitrarily reduced to fit a more growing pattern.\nSource: Author's work based on financial reports. Items in $millions. *The figure from 2014 has been removed and the net income figure from 2020 has been reduced to illustrate the point explained above. 2021 figure is an estimate based on first 3 quarters.\nThe result would be a much more promising-looking trend altogether. When taking short-term growth figures into account when valuing a company one should wonder if they are punishing bad results or actually punishing good results. All considered it doesn't seem like there is a reasonable cause in the observed financial performance ofPayPal that should make you think prospects are worse than they were 9 months ago.\nIs market growth a concern?\nWith that said, the only other possible explanation is that, indeed, there are external factors that will prevent PayPal from expanding at the previously perceived rate. The stock was recently downgraded by Bernstein, claiming \"market share growth concerns\". The stock has slid over 30% since it reached an ATH at $300 makingPayPal's valuation that much more attractive. But how does this weigh against concerns over market growth?\n\"Fintech\" is no longer a novel concept, and in the last few years, we have seen hundreds if not thousands of companies come out with similar versions of whatPayPal offers. To say the market is saturated, might even be an understatement, butPayPal remains the king of the hill.\nSource: datanyze.com\nIn terms of Payment Processing Software,PayPal has over 50% of the market, and I say that because Braintree, which takes the fifth position, is also owned byPayPal. The problemPayPal faces though, isn't coming from the hundreds of startups and newly IPO'd companies, but by the large players which we also see on his list.\nThis includes AmazonPay, Shopify Inc.'s (SHOP) ShopPay and even Google Pay. Arguably, some of these services have an advantage, in that their payment offerings complement other services. Shopify, for example, incentivizes its users and merchants to use its payment processing platforms, and Google has the advantage of being deeply embedded in a lot of the things we do.\nIn this regard, Shopify and Amazon, for example, have a big advantage, in that they control where much of the money online is spent and can use this to their advantage. However, the payment system is not just limited to eCommerce.PayPal has a presence in many other areas, such as international transfers/transactions and physical payments.PayPal can be used as a bank, and there are also advantages to being a complete financial service focused company, just like there are advantages to having an ecosystem of buyers and sellers on your platform.\nYes, the market is saturated, and growth will become a challenge, but I still believe thatPayPal can succeed long-term and I'll explain why.\nTwo more reasons I will hold on toPayPal\nMy analysis continues to support thatPayPal is on track to deliver the growth and returns I expected weeks ago. In this regard,PayPal offers growth at a reasonable price. It is a profitable and well-established company that is going nowhere.\nMore specifically though, two factors make me especially bullish onPayPal; Venmo and the power of its Balance Sheet.\nStarting with Venmo, this is perhaps the biggest reason why I thinkPayPal still holds plenty of value and growth potential. Venmo is one of the most popular payment Apps in the United States. In 2020 over $159 billion in transactions were processed through Venmo in 2020, and the App is on track to deliver $900 million in revenues in 2021 according to the latest earnings call.\nBut Venmo is barely scratching the surface of what it can achieve, both in terms of growth and monetization. When it comes to the latter, we can see that Venmo can still come a long way in terms of monetization if we compare it to Square Inc.'s (SQ) CashApp.According to estimates, CashApp produced $54 per user in 2020, while Venmo only made $12 from each active user. There are slight differences in transaction costs, but most of this comes from the fact that CashApp is used more for cryptocurrency transactions. This is something Venmo can easily replicate.\nIn terms of growth though, Venmo can go much farther. Originally, Venmo was conceived as a peer-to-peer payment system, but this is quickly moving to businesses too. Amazon.com (AMZN) will be accepting Venmo payments starting in 2022, and I believe this will see significant success.\nVenmo has a place in the mobile phones of 65 million people, and this is somethingPayPal can leverage to its advantage moving forward.\nThe other big reason I will continue to holdPayPal is its incredible Balance Sheet, and all the growth opportunities this opens.PayPal has $13.29 billion in cash and negative net debt. It has a much stronger balance sheet than its most established peers, such as Mastercard Corporation (MA). It's now time forPayPal to put this money to good use to expand its platform, especially internationally, something we already got a taste of in the last investor presentation.\nSource: Investor Presentation\nOn September 7th, it was announced thatPayPal was acquiring Paidy, which uses artificial intelligence to find out the creditworthiness of its users and offers payment instalment plans. This is just one example of howPayPal can enter new markets and expand its footprint. Much like I argued before with Shopify,PayPal can now leverage Paidy to also push its other payment platforms into the Japanese market. I am very excited to see what other acquisitionsPayPal will make.\nTakeaway\nIn conclusion, and referring back to the thesis summary, I see no material reason why shares ofPayPal should continue to depreciate. Exogenous factors haven't changed, competition has always been tough and the company is still on track to deliver on its medium and long term growth targets.PayPal offers investors growth at a reasonable price, and that is hard to come by these days.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":875367599,"gmtCreate":1637614216745,"gmtModify":1637614216745,"author":{"id":"3570022529586181","authorId":"3570022529586181","name":"Alagu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Warning, seekingalpha has bags. Let them unload before we load up. There is plenty of time to buy pypl because this is not going anywhere.&nbsp;","listText":"Warning, seekingalpha has bags. Let them unload before we load up. There is plenty of time to buy pypl because this is not going anywhere.&nbsp;","text":"Warning, seekingalpha has bags. Let them unload before we load up. There is plenty of time to buy pypl because this is not going anywhere.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875367599","repostId":1158506816,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":875929087,"gmtCreate":1637595250667,"gmtModify":1637595250745,"author":{"id":"3572310408162611","authorId":"3572310408162611","name":"Vanillin","avatar":"https://static.tigerbbs.com/57da3673038af147111405348d5fa098","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"I still think Paypal is a good long term hold.","listText":"I still think Paypal is a good long term hold.","text":"I still think Paypal is a good long term hold.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/875929087","repostId":1158506816,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":872433967,"gmtCreate":1637557266666,"gmtModify":1637557266666,"author":{"id":"3558522467635758","authorId":"3558522467635758","name":"investforget","avatar":"https://static.tigerbbs.com/465a618fe838870d5e7ed6cfa1964da8","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Could bottom out","listText":"Could bottom out","text":"Could bottom out","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/872433967","repostId":1158506816,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":872496620,"gmtCreate":1637556426997,"gmtModify":1637556427367,"author":{"id":"3576888762442253","authorId":"3576888762442253","name":"Barbarazhao","avatar":"https://static.tigerbbs.com/40f6fdeabe0e8cac300f1fd2a17eb3ac","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Hope so","listText":"Hope so","text":"Hope so","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/872496620","repostId":1158506816,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":872576830,"gmtCreate":1637553651563,"gmtModify":1637553651703,"author":{"id":"3570186020309805","authorId":"3570186020309805","name":"GoG","avatar":"https://static.tigerbbs.com/1c9fbe31d027bcf439a17955df60352f","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"K","listText":"K","text":"K","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/872576830","repostId":1158506816,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6674850,"gmtCreate":1637553656011,"gmtModify":1637553656035,"authorId":3570186020309805,"author":{"id":3570186020309805,"authorId":3570186020309805,"name":"GoG","avatar":"https://static.tigerbbs.com/1c9fbe31d027bcf439a17955df60352f","vip":1,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":872576830,"type":1,"supId":0,"prevId":0,"content":"k","text":"k","html":"k"}],"langContent":"CN"},{"id":872579010,"gmtCreate":1637553062592,"gmtModify":1637553062975,"author":{"id":"3579992296424941","authorId":"3579992296424941","name":"DMC8","avatar":"https://static.tigerbbs.com/65aa8f5f6299558ce2ab36482793f750","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Like pls&nbsp;","listText":"Like pls&nbsp;","text":"Like pls","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/872579010","repostId":1158506816,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":84,"commentSize":10,"repostSize":0,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1158506816"}