PayPal Holdings, Inc.

Date: April 19, 2024.

Company’s Overview

PayPal Holdings (PYPL), a financial technology giant, operates globally as a digital alternative for money transfers and online payments. Imagine a secure platform that lets you send, receive, and shop using your phone or computer — that’s PayPal in a nutshell. They operate worldwide, processing transactions and offering financial services for individuals and businesses alike.

Competition

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

Related Risks

Numerous competitors, from established banks to new fintech startups, are vying for a slice of the online payments pie. Evolving regulations and cybersecurity threats are a constant concern. Keeping users engaged and growing their market share in a crowded space can be difficult. Economic downturns can also lead to less online spending, hurting transaction volumes. And finally, PayPal relies on partnerships with other platforms, so changes in those partnerships could disrupt their business.

Financial Analysis

Company’s Revenues

Revenues from 2021 to 2023:

• PayPal Holdings annual revenue for 2023 was $29.771B, a 8.19% increase from 2022.
• PayPal Holdings annual revenue for 2022 was $27.518B, a 8.46% increase from 2021.
• PayPal Holdings annual revenue for 2021 was $25.371B, a 18.26% increase from 2020.

The yearly revenue from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s Net Income

Net Income from 2021 to 2023:

• PayPal Holdings annual net income for 2023 was $4.246B, a 75.53% increase from 2022.
• PayPal Holdings annual net income for 2022 was $2.419B, a 41.98% decline from 2021.
• PayPal Holdings annual net income for 2021 was $4.169B, a 0.79% decline from 2020.

The yearly net income from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Company’s EPS

EPS from 2021 to 2023:

• PayPal Holdings 2023 annual EPS was $3.84, a 83.73% increase from 2022.
• PayPal Holdings 2022 annual EPS was $2.09, a 40.63% decline from 2021.
• PayPal Holdings 2021 annual EPS was $3.52, a 0.56% decline from 2020.

Company’s Free Cash Flow

Free Cash Flow from 2021 to 2023:

• PayPal Holdings annual free cash flow for 2023 was $4.265B, a 16.57% decline from 2022.
• PayPal Holdings annual free cash flow for 2022 was $5.112B, a 4.45% increase from 2021.
• PayPal Holdings annual free cash flow for 2021 was $4.894B, a 10.58% decline from 2020.

The yearly free cash flow from 2010 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Shares Outstanding

In June 2022, the Company authorised a stock repurchase program that provides for the repurchase of up to $15 billion of its common stock, with no expiration from the date of authorisation.

During the year ended December 31, 2023, it repurchased approximately $5.0 billion of its common stock.

Asset/Liabilities & Current Ratio

Delving into PayPal’s financial health reveals a generally positive picture. The asset-to-liability ratio of 1.34 indicates their assets (resources) are one-third higher than their debts (liabilities). This provides a comfortable buffer for unexpected costs or strategic investments in innovation and user acquisition, crucial for staying ahead in the competitive fintech space.

However, the current ratio of 1.29 offers a slightly less impressive view. This metric measures a company’s ability to meet short-term obligations (debts due within a year) using short-term assets (cash, receivables). While a ratio exceeding 1, like PayPal’s, suggests they have some wiggle room, it’s not as strong as their overall asset-to-liability ratio. This indicates that a larger portion of their assets might be tied up in less-liquid investments compared to readily available cash.

Valuation

Based on the DFC analysis, PYPL’s price is undervalued, showing an intrinsic value of $98. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 13 buy, 2 overweight, 12 hold, 2 underweight and 2 sell ratings. The consensus rating leans toward hold.

PayPal offers an intriguing proposition for investors seeking a blend of growth and value. While their profitability metrics lag behind the industry average, with a gross margin of 46% and net margin of 14.26% compared to industry medians, their financial health is generally solid. The asset-to-liability ratio of 1.34 and current ratio of 1.29 indicate a comfortable buffer for future investments and some short-term liquidity, respectively.

However, the true strength lies in their impressive growth. Boasting a phenomenal 10-year revenue CAGR of 16.04% and a matching 10-year EPS CAGR of 17.28%, PayPal is clearly a growth machine. They’ve also been shareholder-friendly, reducing shares outstanding by 10% since 2011, and their ROIC of 17.73% indicates excellent returns on invested capital. The undervaluation according to DCF analysis and negative net debt of -$2.2 billion further sweeten the deal. While their profitability might not be best-in-class, PayPal’s impressive growth, strong financial foundation, and attractive valuation make them a compelling opportunity for investors seeking a company poised to continue generating higher and higher revenues and free cash flows in the years to come.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.