PayPal Growth Counterbalances eBay's Slower Growth

PayPal had Q2 revenue of $602 million and is on track to reach 2008 revenue of $2.5 billion and and somewhere around $3.3 billion in 2009. This implies a 2009 top-line growth rate of 32% which would be a modest deceleration from current rates and assumes PayPal will continue to be able to counterbalance lower growth rates on-EBAY with an ever-increasing proportion of business coming from Merchant Services.

PayPal's operating margin (excluding options) is expected to come close to 20% in 2009. This would yield 2009 pro-forma operating income of $660 million and tax-adjusted pro-forma earnings of around $500 million. If we assume a forward P/E multiple of 30x (restricting PEG to under 1.0x) we get a current valuation of roughly $15 billion.

This would value PayPal at the low endpoint of the range Meg Whitman used to give back in 2007.