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PayPal: Get Ready For $8T TAM Opportunity

May 01, 2022 6:50 AM ETPayPal Holdings, Inc. (PYPL) Stock27 Comments
Deniel Selivanov profile picture
Deniel Selivanov


  • I rate shares as a BUY with a fair value of $95.13/share (an average value across my 3 scenarios) which implies a discount of 8% vs the current price of $87.93.
  • I believe that the current company's TAM is close to ~$4T in addressable volumes and it will more than double by 2030.
  • Inflationary pressure on low-income consumers, weaker e-commerce activity, and other factors may adversely affect the company's operating performance.
PayPal and Venmo Accepted Here

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Business Overview

PayPal (NASDAQ:PYPL) is a data-driven company that operates a two-sided network that connects merchants and consumers with 429 million active accounts across more than 200 markets. In particular, the Company offers to merchants an end-to-end payments solution along

This article was written by

Deniel Selivanov profile picture
Greetings, I have a grounding in both long and short-side investment strategies. My primary focus revolves around the consumer discretionary sector, where I specialize in seeking out promising companies based on Peter Lynch's investment style. My aim is to navigate the intricate tapestry of markets, seeking out promising pathways for generating alpha.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in PYPL over the next 72 hours. 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 (27)

The product is the problem.

Pypl, it has its own payment gateway coupled with a wallet tokenization to provide a secure checkout option to merchants and acquirers. Pypl is widely used in North America. Howver, this all-in-1 suite is a double-edged sword. It is in competition with other payment gateways who can offer the same sort of implementation with googlepay and applepay tokenization. Most established gateways already have googlepay and applepay wallet tokenization. In addition, other payment gateways offer localised payment offerings that are widely used in specific geographical regions. Essentially, Pypl with a limited product offering is competing with Stripe, Adyen, Fiserv. I'm not sure how do you link sofi as a competitor but you missed out on its direct competitors in what I mention for payment processing.
Now that is only on the E-commerce space. If we look at physical payments, you again have applepay, googlepay which can be tokenised into your mobile phone and make contactless payment. These are then used for payments at physical terminals in brick-and-mortar stores. You can't do that with Pypl. Now, note that all along, be it E-commerce or physical payments, I am always referring to googlepay and applepay as tokenization wallets. It is true that it does not have a payment gateway which Pypl has but it is so popular that it is enabled in most physical terminals and payment gateways that Pypl's competitive advantage is negated.
The capability to use applepay and googlepay tokenization in both physical and e-commerce represents an Omnichannel payment method which Pypl cannot rival.
In short, pypl needs to revamp its product offering to compete not only against the other payment gateways but also applepay and googlepay.
Murad Shawar profile picture
@hilterchan There is enough room for everyone also apple pay and google pay dont offer BNPL or merchant checkout services or merchant loans and dont offer checkout with honey also you got the amazon deal . PAYPAL Just needs to make another 5 aquisitions over the next 5 years and they can grow there fintech platform even more
@Murad Shawar You are missing the point. Apple Pay and Google Pay are available on most established Payment Gateways, which can also offer BNPL and merchant checkout services. My point is that Paypal is competing with these payment gateways which offer WAY MORE than what Paypal is offering. Do browse through E-commerce marketplace service providers such as help.shopify.com/... or Payment gateway service providers such as www.adyen.com/...

Where does Paypal stand in addressing merchant requirements for localised payment solutions?
Murad Shawar profile picture
@hilterchan do they give loans to small business like PAYPAL and SQ does do they offer payment processor like those two do there is enough room for all to compete . It’s going to be funny when PayPal adds in stock trading and such and really monetize the 450M users if 45M of them participate more TAM
TJRyan profile picture
Dead money...CEO Dan Schulman made some bad decisions and can't be trusted. $300- 80s..I'd be hopeful for a Class action suit at this point.
Acewarp profile picture
@Unlevered Investor - thanks for the analysis and especially the Metrics data, which I hope you will provide updates on quarterly in the future. Although you didn't analyze the Metrics data in a way to see where the 2022 over 2021 pain points are (nor did you compare 2022 over 2021 to show where PYPL is recovering relative to 2020 over 2019, and where it isn't recovering), doing those comparisons on your data sheds useful light on 2 key matters:

1) In terms of Changes in # of Transactions, Change in ARPU and Change in U.S. Revenue, the 3/1/22 over 3/1/21 "post-recovery" Metrics are superior to the 3/1/20 over 3/1/19 "pre-covid" Metrics, which is no mean feat and very encouraging momentum for PYPL going forward. Yes, 3/1/21 over 3/1/20 Metrics are totally superior to the other 2 periods, but that is understandable given the covid pandemic impact on that year and the pull forward of the volumes.

2) Global change in dollar volumes and UK/International change in revenue were weaker in the 3/1/22 over 3/1/21 period than the 3/1/20 over 3/1/2019 period. This is where PYPL has to focus its remediation efforts. Undoubtedly, the eBay wind-down in the last year, and the lack of overseas FX-related and Instant Transfer volumes, are part of this problem and will self-correct. But PYPL needs to focus hard on these metrics to ensure they are not losing in these categories due to competition.

Overall, the recent Metrics show that PYPL's recent strategic pivot to focus on user engagement (vs adding clients) is already proving to working to PYPL's advantage. PYPL's Digital Wallet/Super App is a key reason for this recent progress, and as it builds out further functionality, it's superior polling among consumers and merchants alike should accelerate its Metrics going forward, as lesser Digital Wallets languish relatively.
Baloney Sandwitch profile picture
@Unlevered Investor You should be ignoring change of net working capital and deducting Stock based comp in your model. In general, FCF is not a good metric for financial companies. Too variable and misleading. Better stick to GAAP net income.
Dobbs99 profile picture
8% and you’re optimistic. I don’t get it
For only 8% upside why should I read your lengthy article ? Comon man you can do better
in this kind of economy how can paypal grow enough to justify as a purchase as a growth stoc for at least the next year?
Deniel Selivanov profile picture
@john boy The Company's decision to shift their strategy from quantity to quality was perfectly timed and I think that if they are able to execute it effectively it will answer your question... Moreover, consider that later this year Amazon will enable customers to pay with Venmo which may represent a huge tailwind
I like PayPal's prospects longer term, but I think the share price will continue to trend lower in the short term due to the bearish momentum coupled with an overall market downtrend. I would not be surprised if it breaches your bearish target. If it does reach that level, I will likely initiate a position in the stock.
@D. Barrett I hope so until i can establish my full position. Actually looking for 30-40$ range. i Have half a position at dca of $100.
@Nickochu143 wow 40$ range that would definately make it a value play.
A juicy 8 % .. let’s party
@FLMike in a Bear market investors may do a gig to get a 8% return🤗😉
Why would u recommend a BUY with only 8% upside?
Gallovidia Investments profile picture
@cashewdad Your statement only holds true if you are holding for short-term, with the expectation for valuation and author's 'fair value' to converge. Hence, 8% upside.
Further out, if you believe risk and reward to always be equal (I personally don't), then the author's 8.83% discount rate is an appropriate proxy for annualised return.
@cashewdad these numbers are averages. If the bull case is achieved it would be 25%.
@Matthew Shedden I would rather buy I bond, with ~10% current yield.
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