Should you buy PayPal stock? (August 2023)
PayPal stock analysis. PYPL.
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Paypal reported earnings last week and the stock collapsed 15%. Shares are down 80% since its all-time high which means the company has lost more than 270 billion dollars in value.
Right now, the company has a market cap of 70.8 billion dollars. Adjust for cash, investments and debt and the enterprise value is 67 billion.
Revenue over the last 12 months is 28.6 billion, net income is 4.1 billion and free cash flow is 3.6 billion.
So Paypal is currently valued at 2.3 times revenue, 17 times earnings and under 19 times free cash flow.
That looks cheap. In fact, Paypal hasn’t been this cheap since 2017. And in 2017 the business was producing significantly less:
For example, revenue in 2017 was only 13 billion versus 28 billion today.
And net income in 2017 was only 1.8 billion versus over 4 billion today.
So what’s going on? The key issue is that Paypal is experiencing slowing growth. Revenue growth has slowed from 20% in 2017 to just 8% over the last 12 months. And investors are concerned about a large number of competitive threats.
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Join 9000+ investors: https://www.overlookedalpha.com
Paypal reported earnings last week and the stock collapsed 15%. Shares are down 80% since its all-time high which means the company has lost more than 270 billion dollars in value.
Right now, the company has a market cap of 70.8 billion dollars. Adjust for cash, investments and debt and the enterprise value is 67 billion.
Revenue over the last 12 months is 28.6 billion, net income is 4.1 billion and free cash flow is 3.6 billion.
So Paypal is currently valued at 2.3 times revenue, 17 times earnings and under 19 times free cash flow.
That looks cheap. In fact, Paypal hasn’t been this cheap since 2017. And in 2017 the business was producing significantly less:
For example, revenue in 2017 was only 13 billion versus 28 billion today.
And net income in 2017 was only 1.8 billion versus over 4 billion today.
So what’s going on? The key issue is that Paypal is experiencing slowing growth. Revenue growth has slowed from 20% in 2017 to just 8% over the last 12 months. And investors are concerned about a large number of competitive threats.
#paypalstock #stocks #investing #stockstobuy #overlookedalpha
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NewsTranscript
00:00 PayPal reported earnings last week and the stock collapsed 15%.
00:04 Shares are down 80% since its all time high which means the company has lost more than
00:09 $270 billion in value.
00:11 Right now the company has a market cap of $71 billion.
00:15 Adjust for cash, investments and debt and the enterprise value is $67 billion.
00:20 Revenue over the last 12 months is $28.6 billion, net income is $4.1 billion and free cash flow
00:26 is $3.6 billion.
00:28 So PayPal is currently valued at 2.3 times revenue, 17 times earnings and under 19 times
00:34 free cash flow.
00:35 That looks cheap, in fact PayPal hasn't been this cheap since 2017 and in 2017 the
00:41 business was producing significantly less.
00:44 For example revenue in 2017 was only $13 billion vs $28 billion today and net income in 2017
00:51 was only $1.8 billion vs over $4 billion today.
00:55 So what's going on?
00:56 The key issue is that PayPal is experiencing slowing growth.
01:00 Revenue growth has slowed from 20% in 2017 to just 8% over the last 12 months and investors
01:07 are concerned about a large number of competitive threats.
01:11 Apple Pay is rapidly increasing its share of digital payments and there are other big
01:16 rivals such as Google Pay, Block, Shop, Zelle, Wise and FedNow.
01:21 Although PayPal posted a 7% increase in revenue in the latest quarter, its number of active
01:27 accounts fell for the second quarter in a row to 431 million.
01:32 Gross margins have also fallen to 41% and the company's take rate which is the amount
01:37 of money it earns per transaction has fallen 2 to 1.7%.
01:42 But there are some positives, activist hedge fund Elliott Management is helping the company
01:46 to reduce costs and return cash to shareholders.
01:50 The company expects to repurchase $5 billion worth of stock this year which could boost
01:55 earnings per share by up to 20%.
01:57 Venmo is still widely used as an app and PayPal's unbranded payment system Braintree drives
02:04 the back end for some large tech companies like Airbnb and Dropbox.
02:09 This segment is lower margin but is showing solid growth in the region of 30%.
02:14 More importantly PayPal has suffered from a general slowdown in e-commerce activity
02:19 after the pandemic.
02:20 When that activity picks up, revenues should rebound.
02:24 But again it won't be easy, PayPal's Braintree segment also faces fierce competition from
02:29 the likes of Stripe and Adyen.
02:31 And with so many businesses wanting to enter payments, perhaps the most logical conclusion
02:36 is a gradual decline in transaction fees across the board.
02:39 Let's assume a simplistic scenario where PayPal can grow its earnings 10% per year
02:45 for the next 10 years then trade at a 25 times multiple.
02:48 In that scenario the company would be worth around $266 billion in 10 years time.
02:53 That works out to an investment return of 13.6% a year which seems fairly reasonable.
02:59 Overall there are clear pressures facing PayPal but the tailwinds for online payments are
03:03 also pretty strong and that should keep the company on the path to growth.
03:07 At less than 18 times earnings I rate the stock a cautious buy but these are my personal
03:12 opinions not financial advice and I hold no position in the stock.
03:16 For more detailed investing ideas make sure to visit our website overlookedalpha.com