Paypal (Nasdaq:PYPL) is a payments technology company. It is trading 80% lower from its peak in 2021 and currently holds a P/E ratio of 15 and a market cap of $66b. The stock looks relatively cheap historically and yet it continues its ability to generate ever-larger earnings. Operating income has been growing at a good clip over the last 4 years at a compound rate of roughly 24%. Revenue has increased 44% over the same period. It maintains a strong balance sheet with cash, cash equivalents, and investments totalling $18.3bn (as of June 30, 2024) and debt of $12.2bn. It boasts a return on equity of 20% and levered free cash flow (ttm) of $9.04bn. Mergers and acquisitions could further boost PYPL and as it matures, a dividend could also be introduced.
Some Q2 2024 results:
-Net revenues increased 8% to $7.9 billion
-Transaction margin dollars increased 8% to $3.6 billion
-GAAP operating income increased 17% to $1.3 billion
-Total payment volume increased 11% to $416.8 billion
-Payment transactions increased 8% to 6.6 billion.
-Active accounts decreased 0.4% to 429 million. Sounds bad but “An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform … within the past 12 months.”
Geographic sales (Q2 2024)
U.S. net revenues: $4,5bn
International net revenues: $3,3bn
Published guidance Q3 2024:
Year-over-year mid-single-digit in revenue growth and low-to-mid-single-digit growth in EPS.
Guidance FY2024:
-Management plans to buy back shares at $6bn a year. From 2023: “We continued to execute a disciplined capital allocation strategy, returning $5 billion to stockholders through share repurchases in 2023, representing 119% of our free cash flow.” Net cash provided by operating activities was $4,84bn. Net cash provided by Financing activities was -$2,99bn. When calculated with investing activities leads to a net increase in cash, cash equivalents, and restricted cash of $2,67bn. “The net cash used in financing activities of $3.0 billion in 2023 was due primarily to the repurchase of $5.0 billion of our common stock under our stock repurchase programs, repayments of borrowings under financing arrangements of $1.1 billion (including principal repayment of fixed rate debt that matured in June 2023 and repayment of borrowings under our Paidy credit agreement), tax withholdings of $257 million related to net share settlement of equity awards, and a decline in collateral received related to derivative instruments of $197 million.”
-$3.88 – $3.98 EPS from $3.84 (prior year)
Product innovation and expansion has allowed Paypal to grab a big portion of the online market. Products like Venmo, an easy-to-use digital wallet, and Braintree, a payments platform complement Paypal, itself a multi-faceted app with access to crypto and Buy Now Pay Later features. Optimizing its offerings and exploring other financial services could prove lucrative over the long-term. A baseline return of 10% is the lowest estimate at this point, that does not include any growth.
*I own and recommend shares of PYPL*
———————*****UPDATE SEP 2025
The company has had a Strong 1H; raising FY’25 transaction margin dollars and EPS guidance
Paypal is exploring growth with Venmo, debit cards and Buy Now Pay Later. It is also Innovating within its sector: investing in agentics, ads, crypto/stablecoins, and PayPal World.
Paypal world connects five of the world’s largest digital payment systems in hopes of reaching a total market of over $2b users into a single platform, up from roughly 400m active accounts. Paypal world is launching in the fall. Its partners include Tenpay (part of Chinese company Tencent), NPCI (Indian digital wallet provider), and Mercado Pago (part of Mercado Libre).
Revenue aren’t growing as much as we’d like to, earnings are still growing strong with 20% guidance of diluted EPS growth at Q3 and the fiscal year. Paypal is also using most, if not all, of its free cash flow to buyback shares (further boosting EPS).
*I re-bought shares of PYPL*
Devlin Demontigny 