Should you buy Paypal stock?
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Payments platform Paypal hit a peak market cap over 350 billion in 2021. But a sharp fall in the share price means the company is now valued around 92 billion.
With 10.9 billion in cash and investments and almost the same in debt, the enterprise value is 91.3 billion.
Revenues over the last 12 months total 27 billion dollars with 2.3 billion in net income and 2 dollars earnings per share.
That means the stock is now valued at 3.4 times revenue or 40 times earnings. And the stock also generates significant free cash flow, almost six billion dollars over the past year.
So why has Paypal stock fallen so sharply? The simple answer is that the stock got too expensive. Historically, Paypal has traded at a PE ratio around 45. In late 2021, the stock was trading at over 87 times earnings. Then in the second quarter of 2022, the company posted its first quarterly loss since going public.
Historically, Paypal has grown revenues around 18% per year and earnings per share 36% per year. But based on guidance, revenue growth this year will slow to 8.5% and earnings per share will fall back to 2019 levels.
The decline in performance prompted a $2 billion investment from activist investor Elliott Management, and the company is now working on reducing costs and buying back shares.
This slowdown is partly a result of consumers returning to physical stores rather than shopping online. But it’s also a result of intense competition. For example, in 2021, Ebay officially ditched Paypal as its payments partner, preferring dutch rival Adyen.
And there’s no shortage of other competitors in the form of Square, Stripe, Skrill, Google Pay, Apple Pay etc.
Paypal started as a safe way to make payments online. But in 2023 it's just as secure and easy to use your credit card as it is to use Paypal.
#stocks #investing #stockstobuy #stockstowatch #overlookedalpha
Payments platform Paypal hit a peak market cap over 350 billion in 2021. But a sharp fall in the share price means the company is now valued around 92 billion.
With 10.9 billion in cash and investments and almost the same in debt, the enterprise value is 91.3 billion.
Revenues over the last 12 months total 27 billion dollars with 2.3 billion in net income and 2 dollars earnings per share.
That means the stock is now valued at 3.4 times revenue or 40 times earnings. And the stock also generates significant free cash flow, almost six billion dollars over the past year.
So why has Paypal stock fallen so sharply? The simple answer is that the stock got too expensive. Historically, Paypal has traded at a PE ratio around 45. In late 2021, the stock was trading at over 87 times earnings. Then in the second quarter of 2022, the company posted its first quarterly loss since going public.
Historically, Paypal has grown revenues around 18% per year and earnings per share 36% per year. But based on guidance, revenue growth this year will slow to 8.5% and earnings per share will fall back to 2019 levels.
The decline in performance prompted a $2 billion investment from activist investor Elliott Management, and the company is now working on reducing costs and buying back shares.
This slowdown is partly a result of consumers returning to physical stores rather than shopping online. But it’s also a result of intense competition. For example, in 2021, Ebay officially ditched Paypal as its payments partner, preferring dutch rival Adyen.
And there’s no shortage of other competitors in the form of Square, Stripe, Skrill, Google Pay, Apple Pay etc.
Paypal started as a safe way to make payments online. But in 2023 it's just as secure and easy to use your credit card as it is to use Paypal.
#stocks #investing #stockstobuy #stockstowatch #overlookedalpha
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NewsTranscript
00:00 Should you buy PayPal stock? Payments platform PayPal hit a peak market cap over $350 billion
00:07 in 2021 but a sharp fall in the share price means the company is now valued around $92
00:13 billion. With $10.9 billion in cash and investments and almost the same in debt, the enterprise
00:18 value is $91.3 billion. Revenues over the last 12 months total $27 billion with $2.3
00:25 billion in net income and $2 earnings per share. That means the stock is now valued
00:30 at 3.4 times revenue or 40 times earnings and the stock also generates significant free
00:36 cash flow almost $6 billion over the past year.
00:39 So why has PayPal stock fallen so sharply? The simple answer is that the stock got too
00:44 expensive. Historically PayPal has traded at a P/E ratio around 45. In late 2021 the
00:51 stock was trading at over 87 times earnings. Then in the second quarter of 2022 the company
00:57 posted its first quarterly loss since going public. Historically PayPal has grown revenues
01:03 around 18% per year and earnings per share 36% per year but based on guidance revenue
01:09 growth this year will slow to 8.5% and earnings per share will fall 40% back to 2019 levels.
01:16 The decline in performance prompted a $2 billion investment from activist investor Elliot Management
01:21 and PayPal is now working on reducing costs and buying back shares.
01:26 The slowdown in PayPal is partly a result of consumers returning to physical stores
01:30 rather than shopping online but it's also a result of intense competition. For example
01:35 in 2021 eBay officially ditched PayPal as its payments partner preferring Dutch rival
01:41 Adyen and there's no shortage of other competitors in the form of Square, Stripe,
01:47 Skrill, Google Pay, Apple Pay etc. PayPal really started as a safe way to make
01:52 payments online but in 2023 it's just as secure and easy to use your credit card as
01:58 it is to go through PayPal. PayPal also came under intense scrutiny last
02:03 year when the company said it would fine accounts for spreading misinformation. PayPal later
02:09 backtracked on these comments but even so they suggest some strange behaviour going
02:13 on at the top. One thing that seems certain is that PayPal
02:17 isn't going to grow as fast in the future as it has in the past. Therefore the earnings
02:21 multiple is likely to stay under its historical average. But PayPal's strong cash generation
02:27 means it can still continue to buy back stock thereby increasing the overall earnings per
02:33 share. So let's assume PayPal grows EPS 15% a year
02:37 for the next 10 years and then trades at a lower multiple of 25 times earnings. That
02:42 would give the stock a share price of $212 which works out to an investment return of
02:47 just over 10% per year. Overall PayPal's stock does look tempting
02:52 and Elliott will bring some focus back to shareholders but PayPal no longer seems like
02:56 a disruptive force and it faces intense competition which is why I give the stock a neutral rating.
03:02 But these are personal opinions not financial advice and I hold no position in PayPal stock.
03:07 For more detailed investing ideas visit our website overlookedalpha.com