Is PYPL A Buy Now?

​$PYPL dropped ~6%+ after its earnings call on Wednesday after hours. 

The stock has been a poor investment recently, down 14% in the last five years, despite hitting an all-time high in 2021.

PayPal is the original Fintech and should still have a long growth potential ahead. But the stock price in recent quarters tells a different story. 

What can we learn from its latest earnings report about its long-term potential? Read more on this thread.

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Interesting Stuff From PYPL's Earnings

• PayPal is much bigger than the PayPal payment -- growth is coming from its Braintree (B2B payment processors) and Venmo.
• The company is impacted by the Held-For-Sale loan value issue related to its BNPL loans' fair market value (remember SVB?) and its selling it to KKR. A one-time hit to FCF this quarter. 
• Venmo is taking off (8% volume increase) Venmo Teen account and Tap to Pay are new features. On a personal note, I just donated to our local girl basketball team and paid for my restaurant parking spot with Venmo. This app is growing. 

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PYPL's Revenue 

Leading Indicators: 

• Total payment volume is up 11%, Y/Y.
• Transaction per active accounts ate up 12%.
• Active accounts remained flat.

So, $PYPL is extracting more value from its current base. 
Why doesn't it grow its base? 
The mgmt. says it is intentional and is focusing on engaging the current base. 

Revenue grew 8%. 

Score: Fair to Good - Not a high-growth company anymore!

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PYPL's Bottom Line

• Significant sales & marketing cost cuts (24%).
• OpEx is down 11%.
• GAAP operating margin of 15.5% (Not its best, but better than the last Q)

Score: Fair to Good -- Directionally moving toward higher profitability. 

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PYPL's Balance Sheet

​~ $12B+ cash & cash equivalent
vs. ~$10B in total debt

Strong cash held from customers' balances.

Score: GOOD 

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PYPL's Free Cash Flow

Impacted the fair value deduction of the BNPL loans being sold to KKR, the company took a $1.2B hit to its FCF. 

It seems to be an excellent decision to avoid holding the loan balance on the balance sheet. 

PYPL is a solid free cash flow generator with a trailing 12-month FCF of ~$5B. 
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Score: Good -- watch for other short-term impacts

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PYPL's Valuation

Because PYPL is a more mature company (profitable, FCF), using P/E is a good valuation indicator. 

In this case, a Forward P/E of 15X is relatively undervalued. 
Even with the 3X P/S ratio, the stock isn't too expensive. 
To grow sales 3X in the next ten years, PYPL needs 12% annual rev growth. This is in the range of the overall market and PayPal's revenue growth.  

Score: FAIR to GOOD -- Watch for earnings and rev growth. 

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Is PYPL A Buy Now?

The company's fundamentals remain strong, despite the stock price
The stock price could be a good buying opportunity.
No expectation of crazy 5X - 10X growth potential 

I own it, and plan to hold it. 

See you next time!