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PayPal: Shifting Gears On A Busy Freeway

Dec. 04, 2021 5:37 AM ETPayPal Holdings, Inc. (PYPL)62 Comments
Piotr Kasprzyk profile picture
Piotr Kasprzyk


  • The total addressable market in which PayPal operates can be estimated at around $110 trillion and the company enjoys only 1% market share.
  • The company has been efficiently allocating capital manifesting its spawning DNA. Is the business good enough to own a part of?
  • In order to remain ahead of the competition, PayPal must differentiate its products and services from those offered by the competitors.
  • Is PayPal poised to be an investment delivering mediocre results for a longer period of time or is it just a temporary stumble?
Paypal CEO Dan Schulman Opens Trading On Nasdaq Exchange

Spencer Platt/Getty Images News

On February 19, 2019, the CEO of PayPal Holdings (NASDAQ:PYPL) - Dan Schulman - told CNBC that the digital payments industry is likely to grow to a $100 trillion market. Two years later, during the investor's day, he reiterated this

This article was written by

Piotr Kasprzyk profile picture
Long-term equity investor with a main focus on technology and consumer discretionary sectors with a high long-term growth potential.Highly-selective when making investments.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PYPL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (62)

Alpwolf profile picture
When the Tide goes down…etc.etc
AnalogNomad profile picture
Price when this article was published: $184 a share. Present price, $84 a share. How to become a millionaire? Invest about 2.5 million in this recommendation, wait a few months, and... bam! You've got a million.

Never... ever... underestimate a company's ability to become it's own worst enemy, once it begins to take it's users, and position in the market for granted.
Piotr Kasprzyk profile picture
@AnalogNomad By no means was the article a recommendation. Initializing a position at $184 doesn't mean you are down 50% on the stock. Investing in individual stocks by retail investors is a part of personal finance which is personal. If you disagree with the thesis, don't like the risk, or don't have a process, please don't rely on anybody's opinion. Do your own due diligence and invest accordingly.
Wow! When you “experts” are wrong, you need to be held accountable.

With all due respect how can some of you live with yourselves? How much money did you just lose for people that followed this advice on PYPL?

This is the same as going with the advice on tv talking heads.
I urge people not to listen! If you do, you will lose lots of money in the long run.
Piotr Kasprzyk profile picture
@roblasorsa Thank you for your comment. I can be held accountable and since the publication, I increased my stake at PayPal. I welcomed the drop since the business just got cheaper. My thesis hasn't changed. PayPal hasn't suddenly become a lousy company just because it disappointed Wall Street.
Remember that you only lose money in the stock market when you sell. If you know why you invested in the stock and the thesis didn't change, you keep buying the stock when the price drops.
Besides that, the article isn't supposed to be investment advice and I didn't encourage you to go and buy the stock. The article expresses my point of view and I hope it gives a better picture of PayPal's valuation. If I'm right or wrong, we'll see in 10 years since this is the time horizon I presented. Just because the stock price moved up or down after two months doesn't say anything.
Please, do your due diligence before making investment decisions. Seeking Alpha is a great source of information, but in the end, the investor takes responsibility for the investment decisions he makes.
@Piotr Kasprzyk Well, I never purchased the stock - but It m sure a lot of people did. The stock is down almost 50%, which means to get back to “even” PYPL has to DOUBLE in price. To get up to $400 - what many experts were calling for - the stock has to go up over 150% from its current levels. These are the people that I want to see “called out.”
@Piotr Kasprzyk Bought a £1000 stake at around $200 and of course the company tanked. Bought far more today at around $104 and I only wish I had more money to buy some more. Venmo being used as a payment method on Amazon is reason alone to own this company.
By launching Vermo credit card, Paypall/Venmo is becoming a huge digital bank. Venmo's 450milion uresrs will apply more and more vermo credit card. And it will be one of key to monitize the huge verno ecosystem that Paypall has just begin. Here are just some of the retailers that accept Venmo credit and debit cards (Visa and Master Card) as payment:

Dick’s Sporting Goods
Home Depot
The North Face
Under Armour

Mr. Kasprzyk, how do you think abou my point?
Piotr Kasprzyk profile picture
@william66 Thank you for the comment. I agree and I believe the market is overreacting by sending the stock 25% down.
In the fact of increasing competition, it will take some doing for PYPL to double its market cap.

How 'bout investing in one of the newer, smaller fintechs that analysts believe can compete effectively with PYPL and thus with a little effort might be able to double its market value within a relatively short time-frame.

Perhaps some of the SA savants can offer suggestion(s) in this regard. We live in hope.
You comment about buying the smaller ones ignores the advantage (someday that becomes a moat) that is scale. As PYPL (like SQ) becomes an eco-system play, scale really, really matters.
John D. Edwards CFA profile picture
Thanks for the article. Can you go into more detail on how you determined fair value for PYPL shares? Thanks!
Piotr Kasprzyk profile picture
@John D. Edwards CFA Thank you for the comment. What exactly would you like me to explain?
John D. Edwards CFA profile picture
@Piotr Kasprzyk in the article it says you determined the value of PYPL shares as $186 but unless I just missed it, there was no explanation of how you arrived at that value. So I was hoping you could explain how you arrived at that number.
Piotr Kasprzyk profile picture
@John D. Edwards CFA "The P/S ratio is an average from the last five years and the fair value is calculated as P/S * Revenue / Shares Outstanding for the corresponding fiscal year." All the numbers are summed up in the table.
Respect the Game profile picture
A good article, a template for how to evaluate a stock.


Good article on PYPL, thx! How about writing on SQ & SOFI next? Fintechs will storm back with a vengeance, imho.
Murad Shawar profile picture
@drbob512 I own V/MA as well as PAYPAL and SQ and SOFI these are the fintech of the future
Likrat ha-Tiferet profile picture
Large part of PYPL's earnings in recent years has been due to reported appreciation of their equity investments; looking at most recent 9 months earnings report, we will probably not see that this year; and judging by the dramatic sell off in all payment processor stocks, we might actually see a write down. it is quite likely that PYPL will record a 10% earnings per share drop this year.

in which case you are probably paying 44x earnings for earnings that will drop. usually, when this happens in momentum stocks, they cave


on a more realistic note, this company has been growing its normalized earnings in line with sales, about 19% per year. why would you pay 60x for the normalized earnings?
@Likrat ha-Tiferet Interesting points. With this mentality, does Visa's PE (FWD) of 28 seem like a better buy to you? It's well below its 5 year average
Likrat ha-Tiferet profile picture

i have yet to look at visa's accounts, but i already see a suggestion of a similar problem there. Visa's EBIDTA has only grown about 10% per year over the last five years, but their reported per share earnings have grown 20%. A head scratcher, yes? Only about 1.7% of that excess growth seems to be accounted for by stock buybacks, meaning that there is some weird unexplained 8% profit growth per year phenomenon going on there, too. my guess is that those are also portfolio gains, though perhaps not on equity holdings but on their "float" (they have a huge cash pile and that probably sits in US treasuries and those have done really well over the last several years but will either do nothing or actually decline going forward). since SA has refused to take any interest in my article on PYPL's profit mystery (the editor helpfully wrote that "we see no value in your work"), i will probably not bother delving into V's earnings on this platform. i do not own any of these stocks. i think they are set up for a huge splat
Piotr Kasprzyk profile picture
@dgi123 thank you for your comment. Visa is still a bit overvalued in my opinion. I'm not convinced that Visa will keep current growth rate for the next 5-10 years.
Nice article and thanks for the long-term valuation/ growth model. Re-entered into a position under $200 recently when I thought that its correction seemed done and I appear to be averaging around your fair value. Took a minute to compare your model to the JPM 2023 model: Yours is only slightly more positive on EPS and therefore expected P/E. JPM’s current TP is $272 for Dec ‘22 (recently reduced their TP from $318 on lower estimates). It still looks like a good long-term investment if PYPL can deliver on expected CAGR.
Piotr Kasprzyk profile picture
@i27 Thank you for your comment. I appreciate it. I'm glad you liked the article and I hope you'll find my future contributions valuable as well.
Venmo is growing, as of this year most of my tenants pay rent thru Venmo. I like it as I can usually transfer the money to my account faster than getting a check. As well our kids activities and fundraisers are taking Venmo payments. This caught my attention so I started researching PayPal further and like what I see. Started a small position on Friday that I plan to average into.
GARPdude profile picture
@johnwilkie18 How is PayPal making money from Venmo? It’s free to pay friends and family.
@GARPdude Did Facebook make money at first? Once you have the users than you can monetize it further. It’s only one slice of the PayPal pie, it’s growth caught my attention and I did further research.
How does Facebook make money, it's free to use. But...

Venmo is more than Peer-to-peer transfer, that's how. Do some research.
Thanks Piotr, Well written report. Also, nice to read, as I bought PYPL on Friday. And will continue to average down if it goes lower.
Piotr Kasprzyk profile picture
@MC22 I'm happy you liked the article. I hope it was helpful to you.
I like Pypl a lot
But market doesn’t look good so I would wait to purchase
$160 my target
quotation profile picture
@tony1957 it's already 40% down and definitely not a Alibaba on the freefall.

You might as well not yet time the market and miss it's run back past $200
Fully agree with the piece.

The 40 percent selloff in PYPL is a great chance to buy a top quality stock at a fair price. And accumulate a position.

The past quarter had plenty of noise, some negatives, such as finalizing the divorce with eBay and some positives such as Venmo’s deal with Amazon.

But beneath the noise, PYPL is a steady growing business with revenues growing at 20 percent per year on the back of the global move to digital finance and PYPL is generating a regular stream of cash flow.

I am buying the dip.
Philip Russell profile picture
Excellent article-SQ and PYPL will thrive in the years ahead!
Piotr Kasprzyk profile picture
@Philip Russell Thank you! I'm glad you liked it.
bil1026 profile picture
Did anyone else notice how Honey became virtually useless about a day after $PYPL overpaid for them?
(Long PYPL but would love to get out @ breakeven).
@bil1026 how is honey useless? I still use it often,and now it's integrated into Safari on iOS as well.plus it seems like their backend has been transferred into the main PayPal app, where instead of honey gold they're now applying Cashback to you paylaly
Alpwolf profile picture
Classic example of some see and some do not!
Have you seen the change in the app ?
DividendGangsta profile picture
Vert well written article. I have been buying in stages on the way down. Doubled my position yesterday at $180.25 and added more to my son's Roth account (he will thank me later in life). All of which I see as an early Christmas gift from Mr. Market.
Piotr Kasprzyk profile picture
@DividendGangsta Thank you for the comment! I'm happy you liked the article.
Ffeldt profile picture
You hit the nail on the head!
The key to picking the winner in the competitive fintech space is to watch the young crowd and follow their money. Like banks, many stick with the same institution once they start, as long as the company keeps up with the service and technology.
Many years ago a bunch of my sons college friends were sitting in restaurant, when the check came to settle up, instead of reaching for their wallets, they settled up with Venmo on their cell phones. I bought PayPal the next week.
Now much older, I recently asked my son if he and his friends still used PayPal/ Venmo. “Yup, more then ever”
Marek Kriz profile picture
Very well written. I was thinking about writing some facts about $PYPL but right now, I'm redirecting everyone to your article.
Piotr Kasprzyk profile picture
@Marek Kriz Thank you. I highly appreciate it :)
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