PayPal: Operational Challenges Ahead, But Exceptionally Undervalued

seekingalpha2023-12-19

SummaryPayPal is a leading online payment platform with a strong business presence.The company faces competition from other payment providers in the market.The article provides an overview of PayPal's...

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how do you do a stock cakes
2023-12-19
how do you do a stock cakes
Do decide to go to get a more greater time !
breAkdaWn
2023-12-19
breAkdaWn
He says buy. We sell

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The changing fintech landscape creates a problematic environment for the company to adjust to and remain relevant in. By looking critically at PayPal's ecosystem, fundamentals, valuation, and peer comparisons, I've concluded that this is one of the best value investments available on the market. The primary concern I have relates to the company's future growth prospects.PayPal's Business OverviewPayPal is an international leader in online payments. The company was initially established as Confinity in 1998 before merging with Elon Musk's X.com in 2000 and being renamed PayPal in 2001. It was initially particularly successful due to its efficient, user-friendly digital transaction capabilities. In 2002, the company was acquired by eBay (EBAY), and it became its primary payment method. In 2015, PayPal was spun off as its own independent business, partly to facilitate its expansion and operations beyond eBay. The company is most commonly known as an integrated payment services provider, and it has acquired various companies in its evolution, including Venmo, a popular payment app in the U.S.The company's main revenue streams include transaction fees, cross-border fees, merchant services, fees and interest on loans, subscription fees, Venmo, partnerships, integrations, and foreign currency exchange.PayPal Business Model InfographicPayPal Annual Report 2022While significant differences exist between these revenue streams, they can be broken down into two simpler segments. The first is 'transaction revenues', and the second is 'other value-added services.'PayPal Revenue Segments - InfographicGuruFocusThe 'value-added' services would include partnerships with financial institutions or e-commerce platforms, merchant interest and fees, and consumer credit products.As of 2023, PayPal's payment volume has increased 10.8% since 2021, standing at $376.54bn in Q2 2023. The total payment volume then reached $387.7bn in Q3 2023. The same source used to gather the Q2 payment volume data (DemandSage) also presents that 431 million people worldwide use PayPal as of 2023. This presents a picture where PayPal is arguably dominant, with 40.52% of the market share in the payment services industry. However, I think this needs to be revised. As we will see in my competitive analysis, the payments industry is a large and diverse space. PayPal also indirectly competes with Apple (AAPL) Pay, Visa (V), and Mastercard (MA) for transaction volume.One of the most significant reasons for the stock dropping in 2021 was a rapid decline in operating profit, starting in Q3 2021. This was as revenue decreased at a much slower rate.PayPal Operating Income Vs. Total Revenue ChartAuthor, Using Seeking AlphaPart of the expense issues that would have led to decreased operating income could be related to the company's setback when eBay transitioned to its own payment provider, known as 'Managed Payments,' in June 2021. This significantly reduced PayPal's transaction volume. By Q2 2021, eBay contributed under 4% of PayPal's volume, a 512 basis point reduction from Q2 2020.Competitive AnalysisPayPal's main competitors, based on my research, are Apple Pay, Square (SQ), and Stripe, among others. Yet, the company also faces wider, indirect competition from leading payment providers like Visa and Mastercard.Taking a comprehensive look at PayPal's main competitors ranked based on historical market cap presents an issue where most of PayPal's larger indirect peers dominate it based on the power of resources to innovate:PayPal Market Cap Peer Comparison ChartAuthor, Using Seeking AlphaLet's look at the peers again to comprehend the different revenues fully. I removed Apple because it has a much broader operational focus than the four remaining companies:PayPal Revenue Peer Comparison ChartAuthor, Using Seeking AlphaThere's a powerful observation here to be made. PayPal, although it has a market cap of around $453bn less than Visa, takes in just $3.52bn less in revenue at the moment.This significant discrepancy is foundational to why PayPal could be considered a value opportunity. Yet, the reality is more nuanced than this, with specific future operational challenges that could thwart PayPal's price return performance.PayPal Vs. Visa P/E GAAP Chart*Indirect Competitors (Author, Using Seeking Alpha)PayPal is valued weakly at the moment for some specific reasons, but my analysis shows that these reasons are exaggerated in the stock price. The greatest of these is the heightened competition, especially as PayPal's innovations quickly get adopted by its peers.For example, look at the organization's Buy Now, Pay Later scheme, which saw massive uptake but has recently been copied by Square, Stripe, and Apple Pay Later.PayPal’s buy now, pay later (BNPL) program spurred strong checkout volume and TPV increases. It’s offered nearly 200 million loans to almost 30 million customers globally since launching in 2020. The program is available at about 300,000 merchants worldwide. - Insider IntelligenceOne of the most profound considerations I think PayPal will face in the coming years is how to remain relevant in a highly saturated and innovative market. The adoption of AI in the payments sector is undoubtedly going to create new companies with new availabilities. If organizations with significant moats based on advanced technology appear, PayPal may lose substantial market share.To combat this, PayPal is focusing on integrating AI and has already done so for quite a while. Its core segments that have integrated such capabilities so far are security and customer service. For example, AI is used in the PayPal chatbot assistant, in error prevention, and to support staff. Fraud detection systems built on pattern recognition and complex artificial intelligence to combat AI identity creation are also areas the company is ramping up on.Valuation PerspectivesA discounted cash flow analysis of PayPal reveals it to be around 30% undervalued if we take the 10-year average EPS w/o NRI growth rate. However, I want to look at a more pessimistic view because PayPal's long-term revenue growth has slowed. If I were going to be generous and assume the company can innovate and grow from here, I might use a 10% annual growth rate:PayPal DCF CalculationAuthor, Using GuruFocusI have done this because the 10-year EPS w/o NRI average annual growth rate is 15.50%. Considering the 3-year rate is 6.80%, 10% seems optimistic on the surface.PayPal Growth RatesGuruFocusA more pessimistic DCF calculation could look as such:PayPal DCF Calculation Low EndAuthor, Using GuruFocusWhile that assumes growth to be slowing based on long-term trends, this is only part of the picture. In the last year, the EPS w/o NRI has shot way up:PayPal EPS w/o NRI TrendGuruFocusPayPal Growth Rates (2)GuruFocusIf the analyst estimates are correct, assuming a 15% growth rate may be more fair. If so, we're looking at a 28.11% undervaluation in the current stock price:PayPal DCF Calculation High EndAuthor, Using GuruFocusThese scenarios do not price in a potentially continued relevance and growth to PayPal a decade out, in which the terminal value growth could increase significantly. However, due to the current competition risks, it is speculative to assume a higher growth rate and more sensible and defensive to use a standard 4%.Let's also review the company based on EPS and stock price to give a more detailed visual of the price-to-earnings picture:PayPal Price Return Vs. EPSAuthor, Using Seeking AlphaAnd there we have it: we can see the undervaluation nicely exhibited in the share price lag in catching up with the new EPS after the COVID-19 boom and decline. I'm asking myself, 'Will the EPS growth be maintained?'. It's uncertain, but the shares look undervalued even if the EPS is only kept steady. If the investment adds up to a growth and value play, that's two in one in my books.From reviewing these perspectives, I would say the fair value of incorporating analyst estimates into the DCF calculation and a defensive approach would be around $80 right now.RisksThere are some important risks that I need to consider when evaluating this stock and understanding whether PayPal can reach my defensive $80 fair value. Yet, I think my estimate is, as I say, defensive. Partly because I predict that the company's continued innovation will push growth and drive revenue so that this isn't purely a value trade but a value investment.One of the specific operational difficulties the organization has faced recently includes Venmo being taken off Amazon as of 01/10/2024. While nowhere near as big a hit as PayPal being removed as the primary payment system on eBay in 2021, this will hurt the company's revenue.In addition, the company is under new management. As of September 2023, Alex Chriss, is the new CEO and President of PayPal. Jamie Miller is now the new Executive Vice President and Chief Financial Officer as of November 2023. Multiple other leadership changes have been made, and under this new management, the focus is on operational efficiency, profitability, innovation, market positioning, and a customer-centric approach. The risk is whether the new leadership can pull of the significant adaptations needed in order to drive the revenue growth to pull past a defensive fair value estimate in the long term.I do think it is significantly unlikely for PayPal to not have a price rebound in the short-to-medium term. The only way I can realistically see this happening is a significant shock in reduced revenues or operational hazards that create poor margin results. It seems unlikely, given the company's management shifts, intentions, and already evidenced strong financial results recently mentioned above.However, one of the important notes I have made to myself is that the company is carrying a significant level of liabilities as compared to previously. For evidence, total liabilities were 52% of the assets in 2015 but are 74% today. This is likely caused by and also could be a hindrance in financing innovation efforts to remain competitive with the significant peers outlined above. Such a high level of liabilities could hinder its mobility to finance large, expensive projects later on.ConclusionIn my opinion, this is a fantastic opportunity. I can't see a better value investment on the market right now, and I own the shares as of just a few days ago. I'm convinced this is one of the more stable value investments to make at the moment. My only question is whether I'll hold it for a long time or wait until the valuation looks fair again. I'll be watching the management's operational decisions and the earnings results to monitor my investment as such.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":0},"commentList":[{"id":253766559265064,"gmtCreate":1702991383434,"gmtModify":1702992059216,"author":{"id":"4143884493901592","authorId":"4143884493901592","name":"how do you do a stock cakes","avatar":"https://community-static.tradeup.com/news/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"Do decide to go to get a more greater time !","listText":"Do decide to go to get a more greater time !","text":"Do decide to go to get a more greater time !","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/253766559265064","repostId":2392210899,"repostType":2,"repost":{"id":"2392210899","pubTimestamp":1702978316,"share":"https://www.laohu8.com/m/news/2392210899?lang=&edition=full","pubTime":"2023-12-19 17:31","market":"us","language":"en","title":"PayPal: Operational Challenges Ahead, But Exceptionally Undervalued","url":"https://stock-news.laohu8.com/highlight/detail?id=2392210899","media":"seekingalpha","summary":"PayPal Stock: Operational Challenges Ahead, But Exceptionally Undervalued (NASDAQ:PYPL) | Seeking Alpha\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nJavascript is Disabled\nYour current browser configurationis not compatible with this site.","content":"<html><head></head><body><h2 id=\"id_2714005089\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li>PayPal is a leading online payment platform with a strong business presence.</li><li>The company faces competition from other payment providers in the market.</li><li>The article provides an overview of PayPal&#39;s valuation and perspectives on its future growth.</li><li>I rate the stock a Buy and consider it a great value opportunity with a current defensive fair value of around $80.</li></ul><img src=\"https://static.tigerbbs.com/3f62b818da265f19017d38c80b55afbe\" alt=\"PayPal Headquarters San Jose\" title=\"PayPal Headquarters San Jose\" tg-width=\"750\" tg-height=\"500\"/>PayPal Headquarters San JoseJasonDoiy<h2 id=\"id_2559886069\">Introduction</h2>I have noticed recently that PayPal (NASDAQ:PYPL) is exceptionally undervalued, with the stock price down over 80% from its all-time high.<img src=\"https://static.tigerbbs.com/251114d0c00ef2f105976f7d85ad842a\" alt=\"PayPal Price Return History\" title=\"PayPal Price Return History\" tg-width=\"640\" tg-height=\"222\"/>PayPal Price Return HistorySeeking AlphaThis presents a huge opportunity, but the investment has risks. The changing fintech landscape creates a problematic environment for the company to adjust to and remain relevant in. By looking critically at PayPal&#39;s ecosystem, fundamentals, valuation, and peer comparisons, I&#39;ve concluded that this is one of the best value investments available on the market. The primary concern I have relates to the company&#39;s future growth prospects.<h2 id=\"id_4136427934\">PayPal&#39;s Business Overview</h2>PayPal is an international leader in online payments. The company was initially established as Confinity in 1998 before merging with Elon Musk&#39;s X.com in 2000 and being renamed PayPal in 2001. It was initially particularly successful due to its efficient, user-friendly digital transaction capabilities. In 2002, the company was acquired by eBay (EBAY), and it became its primary payment method. In 2015, PayPal was spun off as its own independent business, partly to facilitate its expansion and operations beyond eBay. The company is most commonly known as an integrated payment services provider, and it has acquired various companies in its evolution, including Venmo, a popular payment app in the U.S.The company&#39;s main revenue streams include transaction fees, cross-border fees, merchant services, fees and interest on loans, subscription fees, Venmo, partnerships, integrations, and foreign currency exchange.<img src=\"https://static.tigerbbs.com/920772106abf4abd20ca40cd0e187972\" alt=\"PayPal Business Model Infographic\" title=\"PayPal Business Model Infographic\" tg-width=\"640\" tg-height=\"605\"/>PayPal Business Model InfographicPayPal Annual Report 2022While significant differences exist between these revenue streams, they can be broken down into two simpler segments. The first is &#39;transaction revenues&#39;, and the second is &#39;other value-added services.&#39;<img src=\"https://static.tigerbbs.com/36cd15472c2710858eed524ec8238db8\" alt=\"PayPal Revenue Segments - Infographic\" title=\"PayPal Revenue Segments - Infographic\" tg-width=\"640\" tg-height=\"850\"/>PayPal Revenue Segments - InfographicGuruFocusThe &#39;value-added&#39; services would include partnerships with financial institutions or e-commerce platforms, merchant interest and fees, and consumer credit products.As of 2023, PayPal&#39;s payment volume has increased 10.8% since 2021, standing at $376.54bn in Q2 2023. The total payment volume then reached $387.7bn in Q3 2023. The same source used to gather the Q2 payment volume data (DemandSage) also presents that 431 million people worldwide use PayPal as of 2023. This presents a picture where PayPal is arguably dominant, with 40.52% of the market share in the payment services industry. However, I think this needs to be revised. As we will see in my competitive analysis, the payments industry is a large and diverse space. PayPal also indirectly competes with Apple (AAPL) Pay, Visa (V), and Mastercard (MA) for transaction volume.One of the most significant reasons for the stock dropping in 2021 was a rapid decline in operating profit, starting in Q3 2021. This was as revenue decreased at a much slower rate.<img src=\"https://static.tigerbbs.com/53128eabb62ace6bc19f38bef226d0a0\" alt=\"PayPal Operating Income Vs. Total Revenue Chart\" title=\"PayPal Operating Income Vs. Total Revenue Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Operating Income Vs. Total Revenue ChartAuthor, Using Seeking AlphaPart of the expense issues that would have led to decreased operating income could be related to the company&#39;s setback when eBay transitioned to its own payment provider, known as &#39;Managed Payments,&#39; in June 2021. This significantly reduced PayPal&#39;s transaction volume. By Q2 2021, eBay contributed under 4% of PayPal&#39;s volume, a 512 basis point reduction from Q2 2020.<h2 id=\"id_223209670\">Competitive Analysis</h2>PayPal&#39;s main competitors, based on my research, are Apple Pay, Square (SQ), and Stripe, among others. Yet, the company also faces wider, indirect competition from leading payment providers like Visa and Mastercard.Taking a comprehensive look at PayPal&#39;s main competitors ranked based on historical market cap presents an issue where most of PayPal&#39;s larger indirect peers dominate it based on the power of resources to innovate:<img src=\"https://static.tigerbbs.com/8d6a83464aad8410c3f082e2df2f164d\" alt=\"PayPal Market Cap Peer Comparison Chart\" title=\"PayPal Market Cap Peer Comparison Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Market Cap Peer Comparison ChartAuthor, Using Seeking AlphaLet&#39;s look at the peers again to comprehend the different revenues fully. I removed Apple because it has a much broader operational focus than the four remaining companies:<img src=\"https://static.tigerbbs.com/1eebfe27b905e781dea3ebaac8e5ebfd\" alt=\"PayPal Revenue Peer Comparison Chart\" title=\"PayPal Revenue Peer Comparison Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Revenue Peer Comparison ChartAuthor, Using Seeking AlphaThere&#39;s a powerful observation here to be made. PayPal, although it has a market cap of around $453bn less than Visa, takes in just $3.52bn less in revenue at the moment.This significant discrepancy is foundational to why PayPal could be considered a value opportunity. Yet, the reality is more nuanced than this, with specific future operational challenges that could thwart PayPal&#39;s price return performance.<img src=\"https://static.tigerbbs.com/a6fcee2e21fe3792d756681d8e91416b\" alt=\"PayPal Vs. Visa P/E GAAP Chart\" title=\"PayPal Vs. Visa P/E GAAP Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Vs. Visa P/E GAAP Chart*Indirect Competitors (Author, Using Seeking Alpha)PayPal is valued weakly at the moment for some specific reasons, but my analysis shows that these reasons are exaggerated in the stock price. The greatest of these is the heightened competition, especially as PayPal&#39;s innovations quickly get adopted by its peers.For example, look at the organization&#39;s Buy Now, Pay Later scheme, which saw massive uptake but has recently been copied by Square, Stripe, and Apple Pay Later.<blockquote>PayPal’s buy now, pay later (BNPL) program spurred strong checkout volume and TPV increases. It’s offered nearly 200 million loans to almost 30 million customers globally since launching in 2020. The program is available at about 300,000 merchants worldwide. - Insider Intelligence</blockquote>One of the most profound considerations I think PayPal will face in the coming years is how to remain relevant in a highly saturated and innovative market. The adoption of AI in the payments sector is undoubtedly going to create new companies with new availabilities. If organizations with significant moats based on advanced technology appear, PayPal may lose substantial market share.To combat this, PayPal is focusing on integrating AI and has already done so for quite a while. Its core segments that have integrated such capabilities so far are security and customer service. For example, AI is used in the PayPal chatbot assistant, in error prevention, and to support staff. Fraud detection systems built on pattern recognition and complex artificial intelligence to combat AI identity creation are also areas the company is ramping up on.<h2 id=\"id_4161587718\">Valuation Perspectives</h2>A discounted cash flow analysis of PayPal reveals it to be around 30% undervalued if we take the 10-year average EPS w/o NRI growth rate. However, I want to look at a more pessimistic view because PayPal&#39;s long-term revenue growth has slowed. If I were going to be generous and assume the company can innovate and grow from here, I might use a 10% annual growth rate:<img src=\"https://static.tigerbbs.com/4fca0b9c5b84867105f9eddcb89b0345\" alt=\"PayPal DCF Calculation\" title=\"PayPal DCF Calculation\" tg-width=\"640\" tg-height=\"317\"/>PayPal DCF CalculationAuthor, Using GuruFocusI have done this because the 10-year EPS w/o NRI average annual growth rate is 15.50%. Considering the 3-year rate is 6.80%, 10% seems optimistic on the surface.<img src=\"https://static.tigerbbs.com/dc9979d5391d5e9a7a0ee7b9e6adb31b\" alt=\"PayPal Growth Rates\" title=\"PayPal Growth Rates\" tg-width=\"640\" tg-height=\"340\"/>PayPal Growth RatesGuruFocusA more pessimistic DCF calculation could look as such:<img src=\"https://static.tigerbbs.com/af0244a38d7c0e52745dcadf6734f115\" alt=\"PayPal DCF Calculation Low End\" title=\"PayPal DCF Calculation Low End\" tg-width=\"640\" tg-height=\"315\"/>PayPal DCF Calculation Low EndAuthor, Using GuruFocusWhile that assumes growth to be slowing based on long-term trends, this is only part of the picture. In the last year, the EPS w/o NRI has shot way up:<img src=\"https://static.tigerbbs.com/64b56c3a682bb06ad3f8d24e0c35a7fe\" alt=\"PayPal EPS w/o NRI Trend\" title=\"PayPal EPS w/o NRI Trend\" tg-width=\"640\" tg-height=\"270\"/>PayPal EPS w/o NRI TrendGuruFocus<img src=\"https://static.tigerbbs.com/d964117e5e7d48788f7f14b042b918ba\" alt=\"PayPal Growth Rates (2)\" title=\"PayPal Growth Rates (2)\" tg-width=\"640\" tg-height=\"117\"/>PayPal Growth Rates (2)GuruFocusIf the analyst estimates are correct, assuming a 15% growth rate may be more fair. If so, we&#39;re looking at a 28.11% undervaluation in the current stock price:<img src=\"https://static.tigerbbs.com/222f569d7e36b50c2d48eb078344022f\" alt=\"PayPal DCF Calculation High End\" title=\"PayPal DCF Calculation High End\" tg-width=\"640\" tg-height=\"311\"/>PayPal DCF Calculation High EndAuthor, Using GuruFocusThese scenarios do not price in a potentially continued relevance and growth to PayPal a decade out, in which the terminal value growth could increase significantly. However, due to the current competition risks, it is speculative to assume a higher growth rate and more sensible and defensive to use a standard 4%.Let&#39;s also review the company based on EPS and stock price to give a more detailed visual of the price-to-earnings picture:<img src=\"https://static.tigerbbs.com/79650e68adf142e3c49d0587f6ec8257\" alt=\"PayPal Price Return Vs. EPS\" title=\"PayPal Price Return Vs. EPS\" tg-width=\"640\" tg-height=\"222\"/>PayPal Price Return Vs. EPSAuthor, Using Seeking AlphaAnd there we have it: we can see the undervaluation nicely exhibited in the share price lag in catching up with the new EPS after the COVID-19 boom and decline. I&#39;m asking myself, &#39;Will the EPS growth be maintained?&#39;. It&#39;s uncertain, but the shares look undervalued even if the EPS is only kept steady. If the investment adds up to a growth and value play, that&#39;s two in one in my books.From reviewing these perspectives, I would say the fair value of incorporating analyst estimates into the DCF calculation and a defensive approach would be around $80 right now.<h2 id=\"id_2567935192\">Risks</h2>There are some important risks that I need to consider when evaluating this stock and understanding whether PayPal can reach my defensive $80 fair value. Yet, I think my estimate is, as I say, defensive. Partly because I predict that the company&#39;s continued innovation will push growth and drive revenue so that this isn&#39;t purely a value trade but a value investment.One of the specific operational difficulties the organization has faced recently includes Venmo being taken off Amazon as of 01/10/2024. While nowhere near as big a hit as PayPal being removed as the primary payment system on eBay in 2021, this will hurt the company&#39;s revenue.In addition, the company is under new management. As of September 2023, Alex Chriss, is the new CEO and President of PayPal. Jamie Miller is now the new Executive Vice President and Chief Financial Officer as of November 2023. Multiple other leadership changes have been made, and under this new management, the focus is on operational efficiency, profitability, innovation, market positioning, and a customer-centric approach. The risk is whether the new leadership can pull of the significant adaptations needed in order to drive the revenue growth to pull past a defensive fair value estimate in the long term.I do think it is significantly unlikely for PayPal to not have a price rebound in the short-to-medium term. The only way I can realistically see this happening is a significant shock in reduced revenues or operational hazards that create poor margin results. It seems unlikely, given the company&#39;s management shifts, intentions, and already evidenced strong financial results recently mentioned above.However, one of the important notes I have made to myself is that the company is carrying a significant level of liabilities as compared to previously. For evidence, total liabilities were 52% of the assets in 2015 but are 74% today. This is likely caused by and also could be a hindrance in financing innovation efforts to remain competitive with the significant peers outlined above. Such a high level of liabilities could hinder its mobility to finance large, expensive projects later on.<h2 id=\"id_327528676\">Conclusion</h2>In my opinion, this is a fantastic opportunity. I can&#39;t see a better value investment on the market right now, and I own the shares as of just a few days ago. I&#39;m convinced this is one of the more stable value investments to make at the moment. My only question is whether I&#39;ll hold it for a long time or wait until the valuation looks fair again. I&#39;ll be watching the management&#39;s operational decisions and the earnings results to monitor my investment as such.</body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PayPal: Operational Challenges Ahead, But Exceptionally Undervalued</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPayPal: Operational Challenges Ahead, But Exceptionally Undervalued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-12-19 17:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummaryPayPal is a leading online payment platform with a strong business presence.The company faces competition from other payment providers in the market.The article provides an overview of PayPal's...\n\n<a href=\"https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4585":"ETF&股票定投概念","SQQQ":"纳指三倍做空ETF","BK4534":"瑞士信贷持仓","LU2089284900.SGD":"Allianz Global Sustainability Cl AM Dis H2-SGD","BK4533":"AQR资本管理(全球第二大对冲基金)","BK4227":"交易和支付处理服务","BK4566":"资本集团","QID":"纳指两倍做空ETF","LU1861217088.USD":"贝莱德金融科技A2","BK4524":"宅经济概念","BK4535":"淡马锡持仓","BK4527":"明星科技股","LU1861220207.SGD":"Blackrock FinTech A2 SGD-H","BK4588":"碎股","LU0158827948.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"A\" (USD) INC","PSQ":"纳指反向ETF","LU2089283258.USD":"安联环球可持续基金Cl AM Dis","BK4551":"寇图资本持仓","QLD":"纳指两倍做多ETF",".IXIC":"NASDAQ Composite","QQQ":"纳指100ETF","BK4581":"高盛持仓","TQQQ":"纳指三倍做多ETF","LU2023251221.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"AM\" (USD) INC","BK4106":"数据处理与外包服务","BK4554":"元宇宙及AR概念","PYPL":"PayPal"},"source_url":"https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2392210899","content_text":"SummaryPayPal is a leading online payment platform with a strong business presence.The company faces competition from other payment providers in the market.The article provides an overview of PayPal's valuation and perspectives on its future growth.I rate the stock a Buy and consider it a great value opportunity with a current defensive fair value of around $80.PayPal Headquarters San JoseJasonDoiyIntroductionI have noticed recently that PayPal (NASDAQ:PYPL) is exceptionally undervalued, with the stock price down over 80% from its all-time high.PayPal Price Return HistorySeeking AlphaThis presents a huge opportunity, but the investment has risks. The changing fintech landscape creates a problematic environment for the company to adjust to and remain relevant in. By looking critically at PayPal's ecosystem, fundamentals, valuation, and peer comparisons, I've concluded that this is one of the best value investments available on the market. The primary concern I have relates to the company's future growth prospects.PayPal's Business OverviewPayPal is an international leader in online payments. The company was initially established as Confinity in 1998 before merging with Elon Musk's X.com in 2000 and being renamed PayPal in 2001. It was initially particularly successful due to its efficient, user-friendly digital transaction capabilities. In 2002, the company was acquired by eBay (EBAY), and it became its primary payment method. In 2015, PayPal was spun off as its own independent business, partly to facilitate its expansion and operations beyond eBay. The company is most commonly known as an integrated payment services provider, and it has acquired various companies in its evolution, including Venmo, a popular payment app in the U.S.The company's main revenue streams include transaction fees, cross-border fees, merchant services, fees and interest on loans, subscription fees, Venmo, partnerships, integrations, and foreign currency exchange.PayPal Business Model InfographicPayPal Annual Report 2022While significant differences exist between these revenue streams, they can be broken down into two simpler segments. The first is 'transaction revenues', and the second is 'other value-added services.'PayPal Revenue Segments - InfographicGuruFocusThe 'value-added' services would include partnerships with financial institutions or e-commerce platforms, merchant interest and fees, and consumer credit products.As of 2023, PayPal's payment volume has increased 10.8% since 2021, standing at $376.54bn in Q2 2023. The total payment volume then reached $387.7bn in Q3 2023. The same source used to gather the Q2 payment volume data (DemandSage) also presents that 431 million people worldwide use PayPal as of 2023. This presents a picture where PayPal is arguably dominant, with 40.52% of the market share in the payment services industry. However, I think this needs to be revised. As we will see in my competitive analysis, the payments industry is a large and diverse space. PayPal also indirectly competes with Apple (AAPL) Pay, Visa (V), and Mastercard (MA) for transaction volume.One of the most significant reasons for the stock dropping in 2021 was a rapid decline in operating profit, starting in Q3 2021. This was as revenue decreased at a much slower rate.PayPal Operating Income Vs. Total Revenue ChartAuthor, Using Seeking AlphaPart of the expense issues that would have led to decreased operating income could be related to the company's setback when eBay transitioned to its own payment provider, known as 'Managed Payments,' in June 2021. This significantly reduced PayPal's transaction volume. By Q2 2021, eBay contributed under 4% of PayPal's volume, a 512 basis point reduction from Q2 2020.Competitive AnalysisPayPal's main competitors, based on my research, are Apple Pay, Square (SQ), and Stripe, among others. Yet, the company also faces wider, indirect competition from leading payment providers like Visa and Mastercard.Taking a comprehensive look at PayPal's main competitors ranked based on historical market cap presents an issue where most of PayPal's larger indirect peers dominate it based on the power of resources to innovate:PayPal Market Cap Peer Comparison ChartAuthor, Using Seeking AlphaLet's look at the peers again to comprehend the different revenues fully. I removed Apple because it has a much broader operational focus than the four remaining companies:PayPal Revenue Peer Comparison ChartAuthor, Using Seeking AlphaThere's a powerful observation here to be made. PayPal, although it has a market cap of around $453bn less than Visa, takes in just $3.52bn less in revenue at the moment.This significant discrepancy is foundational to why PayPal could be considered a value opportunity. Yet, the reality is more nuanced than this, with specific future operational challenges that could thwart PayPal's price return performance.PayPal Vs. Visa P/E GAAP Chart*Indirect Competitors (Author, Using Seeking Alpha)PayPal is valued weakly at the moment for some specific reasons, but my analysis shows that these reasons are exaggerated in the stock price. The greatest of these is the heightened competition, especially as PayPal's innovations quickly get adopted by its peers.For example, look at the organization's Buy Now, Pay Later scheme, which saw massive uptake but has recently been copied by Square, Stripe, and Apple Pay Later.PayPal’s buy now, pay later (BNPL) program spurred strong checkout volume and TPV increases. It’s offered nearly 200 million loans to almost 30 million customers globally since launching in 2020. The program is available at about 300,000 merchants worldwide. - Insider IntelligenceOne of the most profound considerations I think PayPal will face in the coming years is how to remain relevant in a highly saturated and innovative market. The adoption of AI in the payments sector is undoubtedly going to create new companies with new availabilities. If organizations with significant moats based on advanced technology appear, PayPal may lose substantial market share.To combat this, PayPal is focusing on integrating AI and has already done so for quite a while. Its core segments that have integrated such capabilities so far are security and customer service. For example, AI is used in the PayPal chatbot assistant, in error prevention, and to support staff. Fraud detection systems built on pattern recognition and complex artificial intelligence to combat AI identity creation are also areas the company is ramping up on.Valuation PerspectivesA discounted cash flow analysis of PayPal reveals it to be around 30% undervalued if we take the 10-year average EPS w/o NRI growth rate. However, I want to look at a more pessimistic view because PayPal's long-term revenue growth has slowed. If I were going to be generous and assume the company can innovate and grow from here, I might use a 10% annual growth rate:PayPal DCF CalculationAuthor, Using GuruFocusI have done this because the 10-year EPS w/o NRI average annual growth rate is 15.50%. Considering the 3-year rate is 6.80%, 10% seems optimistic on the surface.PayPal Growth RatesGuruFocusA more pessimistic DCF calculation could look as such:PayPal DCF Calculation Low EndAuthor, Using GuruFocusWhile that assumes growth to be slowing based on long-term trends, this is only part of the picture. In the last year, the EPS w/o NRI has shot way up:PayPal EPS w/o NRI TrendGuruFocusPayPal Growth Rates (2)GuruFocusIf the analyst estimates are correct, assuming a 15% growth rate may be more fair. If so, we're looking at a 28.11% undervaluation in the current stock price:PayPal DCF Calculation High EndAuthor, Using GuruFocusThese scenarios do not price in a potentially continued relevance and growth to PayPal a decade out, in which the terminal value growth could increase significantly. However, due to the current competition risks, it is speculative to assume a higher growth rate and more sensible and defensive to use a standard 4%.Let's also review the company based on EPS and stock price to give a more detailed visual of the price-to-earnings picture:PayPal Price Return Vs. EPSAuthor, Using Seeking AlphaAnd there we have it: we can see the undervaluation nicely exhibited in the share price lag in catching up with the new EPS after the COVID-19 boom and decline. I'm asking myself, 'Will the EPS growth be maintained?'. It's uncertain, but the shares look undervalued even if the EPS is only kept steady. If the investment adds up to a growth and value play, that's two in one in my books.From reviewing these perspectives, I would say the fair value of incorporating analyst estimates into the DCF calculation and a defensive approach would be around $80 right now.RisksThere are some important risks that I need to consider when evaluating this stock and understanding whether PayPal can reach my defensive $80 fair value. Yet, I think my estimate is, as I say, defensive. Partly because I predict that the company's continued innovation will push growth and drive revenue so that this isn't purely a value trade but a value investment.One of the specific operational difficulties the organization has faced recently includes Venmo being taken off Amazon as of 01/10/2024. While nowhere near as big a hit as PayPal being removed as the primary payment system on eBay in 2021, this will hurt the company's revenue.In addition, the company is under new management. As of September 2023, Alex Chriss, is the new CEO and President of PayPal. Jamie Miller is now the new Executive Vice President and Chief Financial Officer as of November 2023. Multiple other leadership changes have been made, and under this new management, the focus is on operational efficiency, profitability, innovation, market positioning, and a customer-centric approach. The risk is whether the new leadership can pull of the significant adaptations needed in order to drive the revenue growth to pull past a defensive fair value estimate in the long term.I do think it is significantly unlikely for PayPal to not have a price rebound in the short-to-medium term. The only way I can realistically see this happening is a significant shock in reduced revenues or operational hazards that create poor margin results. It seems unlikely, given the company's management shifts, intentions, and already evidenced strong financial results recently mentioned above.However, one of the important notes I have made to myself is that the company is carrying a significant level of liabilities as compared to previously. For evidence, total liabilities were 52% of the assets in 2015 but are 74% today. This is likely caused by and also could be a hindrance in financing innovation efforts to remain competitive with the significant peers outlined above. Such a high level of liabilities could hinder its mobility to finance large, expensive projects later on.ConclusionIn my opinion, this is a fantastic opportunity. I can't see a better value investment on the market right now, and I own the shares as of just a few days ago. I'm convinced this is one of the more stable value investments to make at the moment. My only question is whether I'll hold it for a long time or wait until the valuation looks fair again. I'll be watching the management's operational decisions and the earnings results to monitor my investment as such.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":253798732382416,"gmtCreate":1702981621386,"gmtModify":1702981625889,"author":{"id":"3569809505691000","authorId":"3569809505691000","name":"breAkdaWn","avatar":"https://community-static.tradeup.com/news/4c3676c14de9bfcd6f45bcf7ba4ddb6c","vip":1,"crmLevel":1,"crmLevelSwitch":0},"htmlText":"He says buy. We sell","listText":"He says buy. We sell","text":"He says buy. We sell","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/253798732382416","repostId":2392210899,"repostType":4,"repost":{"id":"2392210899","pubTimestamp":1702978316,"share":"https://www.laohu8.com/m/news/2392210899?lang=&edition=full","pubTime":"2023-12-19 17:31","market":"us","language":"en","title":"PayPal: Operational Challenges Ahead, But Exceptionally Undervalued","url":"https://stock-news.laohu8.com/highlight/detail?id=2392210899","media":"seekingalpha","summary":"PayPal Stock: Operational Challenges Ahead, But Exceptionally Undervalued (NASDAQ:PYPL) | Seeking Alpha\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\nJavascript is Disabled\nYour current browser configurationis not compatible with this site.","content":"<html><head></head><body><h2 id=\"id_2714005089\" style=\"text-align: left;\">Summary</h2><ul style=\"\"><li>PayPal is a leading online payment platform with a strong business presence.</li><li>The company faces competition from other payment providers in the market.</li><li>The article provides an overview of PayPal&#39;s valuation and perspectives on its future growth.</li><li>I rate the stock a Buy and consider it a great value opportunity with a current defensive fair value of around $80.</li></ul><img src=\"https://static.tigerbbs.com/3f62b818da265f19017d38c80b55afbe\" alt=\"PayPal Headquarters San Jose\" title=\"PayPal Headquarters San Jose\" tg-width=\"750\" tg-height=\"500\"/>PayPal Headquarters San JoseJasonDoiy<h2 id=\"id_2559886069\">Introduction</h2>I have noticed recently that PayPal (NASDAQ:PYPL) is exceptionally undervalued, with the stock price down over 80% from its all-time high.<img src=\"https://static.tigerbbs.com/251114d0c00ef2f105976f7d85ad842a\" alt=\"PayPal Price Return History\" title=\"PayPal Price Return History\" tg-width=\"640\" tg-height=\"222\"/>PayPal Price Return HistorySeeking AlphaThis presents a huge opportunity, but the investment has risks. The changing fintech landscape creates a problematic environment for the company to adjust to and remain relevant in. By looking critically at PayPal&#39;s ecosystem, fundamentals, valuation, and peer comparisons, I&#39;ve concluded that this is one of the best value investments available on the market. The primary concern I have relates to the company&#39;s future growth prospects.<h2 id=\"id_4136427934\">PayPal&#39;s Business Overview</h2>PayPal is an international leader in online payments. The company was initially established as Confinity in 1998 before merging with Elon Musk&#39;s X.com in 2000 and being renamed PayPal in 2001. It was initially particularly successful due to its efficient, user-friendly digital transaction capabilities. In 2002, the company was acquired by eBay (EBAY), and it became its primary payment method. In 2015, PayPal was spun off as its own independent business, partly to facilitate its expansion and operations beyond eBay. The company is most commonly known as an integrated payment services provider, and it has acquired various companies in its evolution, including Venmo, a popular payment app in the U.S.The company&#39;s main revenue streams include transaction fees, cross-border fees, merchant services, fees and interest on loans, subscription fees, Venmo, partnerships, integrations, and foreign currency exchange.<img src=\"https://static.tigerbbs.com/920772106abf4abd20ca40cd0e187972\" alt=\"PayPal Business Model Infographic\" title=\"PayPal Business Model Infographic\" tg-width=\"640\" tg-height=\"605\"/>PayPal Business Model InfographicPayPal Annual Report 2022While significant differences exist between these revenue streams, they can be broken down into two simpler segments. The first is &#39;transaction revenues&#39;, and the second is &#39;other value-added services.&#39;<img src=\"https://static.tigerbbs.com/36cd15472c2710858eed524ec8238db8\" alt=\"PayPal Revenue Segments - Infographic\" title=\"PayPal Revenue Segments - Infographic\" tg-width=\"640\" tg-height=\"850\"/>PayPal Revenue Segments - InfographicGuruFocusThe &#39;value-added&#39; services would include partnerships with financial institutions or e-commerce platforms, merchant interest and fees, and consumer credit products.As of 2023, PayPal&#39;s payment volume has increased 10.8% since 2021, standing at $376.54bn in Q2 2023. The total payment volume then reached $387.7bn in Q3 2023. The same source used to gather the Q2 payment volume data (DemandSage) also presents that 431 million people worldwide use PayPal as of 2023. This presents a picture where PayPal is arguably dominant, with 40.52% of the market share in the payment services industry. However, I think this needs to be revised. As we will see in my competitive analysis, the payments industry is a large and diverse space. PayPal also indirectly competes with Apple (AAPL) Pay, Visa (V), and Mastercard (MA) for transaction volume.One of the most significant reasons for the stock dropping in 2021 was a rapid decline in operating profit, starting in Q3 2021. This was as revenue decreased at a much slower rate.<img src=\"https://static.tigerbbs.com/53128eabb62ace6bc19f38bef226d0a0\" alt=\"PayPal Operating Income Vs. Total Revenue Chart\" title=\"PayPal Operating Income Vs. Total Revenue Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Operating Income Vs. Total Revenue ChartAuthor, Using Seeking AlphaPart of the expense issues that would have led to decreased operating income could be related to the company&#39;s setback when eBay transitioned to its own payment provider, known as &#39;Managed Payments,&#39; in June 2021. This significantly reduced PayPal&#39;s transaction volume. By Q2 2021, eBay contributed under 4% of PayPal&#39;s volume, a 512 basis point reduction from Q2 2020.<h2 id=\"id_223209670\">Competitive Analysis</h2>PayPal&#39;s main competitors, based on my research, are Apple Pay, Square (SQ), and Stripe, among others. Yet, the company also faces wider, indirect competition from leading payment providers like Visa and Mastercard.Taking a comprehensive look at PayPal&#39;s main competitors ranked based on historical market cap presents an issue where most of PayPal&#39;s larger indirect peers dominate it based on the power of resources to innovate:<img src=\"https://static.tigerbbs.com/8d6a83464aad8410c3f082e2df2f164d\" alt=\"PayPal Market Cap Peer Comparison Chart\" title=\"PayPal Market Cap Peer Comparison Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Market Cap Peer Comparison ChartAuthor, Using Seeking AlphaLet&#39;s look at the peers again to comprehend the different revenues fully. I removed Apple because it has a much broader operational focus than the four remaining companies:<img src=\"https://static.tigerbbs.com/1eebfe27b905e781dea3ebaac8e5ebfd\" alt=\"PayPal Revenue Peer Comparison Chart\" title=\"PayPal Revenue Peer Comparison Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Revenue Peer Comparison ChartAuthor, Using Seeking AlphaThere&#39;s a powerful observation here to be made. PayPal, although it has a market cap of around $453bn less than Visa, takes in just $3.52bn less in revenue at the moment.This significant discrepancy is foundational to why PayPal could be considered a value opportunity. Yet, the reality is more nuanced than this, with specific future operational challenges that could thwart PayPal&#39;s price return performance.<img src=\"https://static.tigerbbs.com/a6fcee2e21fe3792d756681d8e91416b\" alt=\"PayPal Vs. Visa P/E GAAP Chart\" title=\"PayPal Vs. Visa P/E GAAP Chart\" tg-width=\"640\" tg-height=\"222\"/>PayPal Vs. Visa P/E GAAP Chart*Indirect Competitors (Author, Using Seeking Alpha)PayPal is valued weakly at the moment for some specific reasons, but my analysis shows that these reasons are exaggerated in the stock price. The greatest of these is the heightened competition, especially as PayPal&#39;s innovations quickly get adopted by its peers.For example, look at the organization&#39;s Buy Now, Pay Later scheme, which saw massive uptake but has recently been copied by Square, Stripe, and Apple Pay Later.<blockquote>PayPal’s buy now, pay later (BNPL) program spurred strong checkout volume and TPV increases. It’s offered nearly 200 million loans to almost 30 million customers globally since launching in 2020. The program is available at about 300,000 merchants worldwide. - Insider Intelligence</blockquote>One of the most profound considerations I think PayPal will face in the coming years is how to remain relevant in a highly saturated and innovative market. The adoption of AI in the payments sector is undoubtedly going to create new companies with new availabilities. If organizations with significant moats based on advanced technology appear, PayPal may lose substantial market share.To combat this, PayPal is focusing on integrating AI and has already done so for quite a while. Its core segments that have integrated such capabilities so far are security and customer service. For example, AI is used in the PayPal chatbot assistant, in error prevention, and to support staff. Fraud detection systems built on pattern recognition and complex artificial intelligence to combat AI identity creation are also areas the company is ramping up on.<h2 id=\"id_4161587718\">Valuation Perspectives</h2>A discounted cash flow analysis of PayPal reveals it to be around 30% undervalued if we take the 10-year average EPS w/o NRI growth rate. However, I want to look at a more pessimistic view because PayPal&#39;s long-term revenue growth has slowed. If I were going to be generous and assume the company can innovate and grow from here, I might use a 10% annual growth rate:<img src=\"https://static.tigerbbs.com/4fca0b9c5b84867105f9eddcb89b0345\" alt=\"PayPal DCF Calculation\" title=\"PayPal DCF Calculation\" tg-width=\"640\" tg-height=\"317\"/>PayPal DCF CalculationAuthor, Using GuruFocusI have done this because the 10-year EPS w/o NRI average annual growth rate is 15.50%. Considering the 3-year rate is 6.80%, 10% seems optimistic on the surface.<img src=\"https://static.tigerbbs.com/dc9979d5391d5e9a7a0ee7b9e6adb31b\" alt=\"PayPal Growth Rates\" title=\"PayPal Growth Rates\" tg-width=\"640\" tg-height=\"340\"/>PayPal Growth RatesGuruFocusA more pessimistic DCF calculation could look as such:<img src=\"https://static.tigerbbs.com/af0244a38d7c0e52745dcadf6734f115\" alt=\"PayPal DCF Calculation Low End\" title=\"PayPal DCF Calculation Low End\" tg-width=\"640\" tg-height=\"315\"/>PayPal DCF Calculation Low EndAuthor, Using GuruFocusWhile that assumes growth to be slowing based on long-term trends, this is only part of the picture. In the last year, the EPS w/o NRI has shot way up:<img src=\"https://static.tigerbbs.com/64b56c3a682bb06ad3f8d24e0c35a7fe\" alt=\"PayPal EPS w/o NRI Trend\" title=\"PayPal EPS w/o NRI Trend\" tg-width=\"640\" tg-height=\"270\"/>PayPal EPS w/o NRI TrendGuruFocus<img src=\"https://static.tigerbbs.com/d964117e5e7d48788f7f14b042b918ba\" alt=\"PayPal Growth Rates (2)\" title=\"PayPal Growth Rates (2)\" tg-width=\"640\" tg-height=\"117\"/>PayPal Growth Rates (2)GuruFocusIf the analyst estimates are correct, assuming a 15% growth rate may be more fair. If so, we&#39;re looking at a 28.11% undervaluation in the current stock price:<img src=\"https://static.tigerbbs.com/222f569d7e36b50c2d48eb078344022f\" alt=\"PayPal DCF Calculation High End\" title=\"PayPal DCF Calculation High End\" tg-width=\"640\" tg-height=\"311\"/>PayPal DCF Calculation High EndAuthor, Using GuruFocusThese scenarios do not price in a potentially continued relevance and growth to PayPal a decade out, in which the terminal value growth could increase significantly. However, due to the current competition risks, it is speculative to assume a higher growth rate and more sensible and defensive to use a standard 4%.Let&#39;s also review the company based on EPS and stock price to give a more detailed visual of the price-to-earnings picture:<img src=\"https://static.tigerbbs.com/79650e68adf142e3c49d0587f6ec8257\" alt=\"PayPal Price Return Vs. EPS\" title=\"PayPal Price Return Vs. EPS\" tg-width=\"640\" tg-height=\"222\"/>PayPal Price Return Vs. EPSAuthor, Using Seeking AlphaAnd there we have it: we can see the undervaluation nicely exhibited in the share price lag in catching up with the new EPS after the COVID-19 boom and decline. I&#39;m asking myself, &#39;Will the EPS growth be maintained?&#39;. It&#39;s uncertain, but the shares look undervalued even if the EPS is only kept steady. If the investment adds up to a growth and value play, that&#39;s two in one in my books.From reviewing these perspectives, I would say the fair value of incorporating analyst estimates into the DCF calculation and a defensive approach would be around $80 right now.<h2 id=\"id_2567935192\">Risks</h2>There are some important risks that I need to consider when evaluating this stock and understanding whether PayPal can reach my defensive $80 fair value. Yet, I think my estimate is, as I say, defensive. Partly because I predict that the company&#39;s continued innovation will push growth and drive revenue so that this isn&#39;t purely a value trade but a value investment.One of the specific operational difficulties the organization has faced recently includes Venmo being taken off Amazon as of 01/10/2024. While nowhere near as big a hit as PayPal being removed as the primary payment system on eBay in 2021, this will hurt the company&#39;s revenue.In addition, the company is under new management. As of September 2023, Alex Chriss, is the new CEO and President of PayPal. Jamie Miller is now the new Executive Vice President and Chief Financial Officer as of November 2023. Multiple other leadership changes have been made, and under this new management, the focus is on operational efficiency, profitability, innovation, market positioning, and a customer-centric approach. The risk is whether the new leadership can pull of the significant adaptations needed in order to drive the revenue growth to pull past a defensive fair value estimate in the long term.I do think it is significantly unlikely for PayPal to not have a price rebound in the short-to-medium term. The only way I can realistically see this happening is a significant shock in reduced revenues or operational hazards that create poor margin results. It seems unlikely, given the company&#39;s management shifts, intentions, and already evidenced strong financial results recently mentioned above.However, one of the important notes I have made to myself is that the company is carrying a significant level of liabilities as compared to previously. For evidence, total liabilities were 52% of the assets in 2015 but are 74% today. This is likely caused by and also could be a hindrance in financing innovation efforts to remain competitive with the significant peers outlined above. Such a high level of liabilities could hinder its mobility to finance large, expensive projects later on.<h2 id=\"id_327528676\">Conclusion</h2>In my opinion, this is a fantastic opportunity. I can&#39;t see a better value investment on the market right now, and I own the shares as of just a few days ago. I&#39;m convinced this is one of the more stable value investments to make at the moment. My only question is whether I&#39;ll hold it for a long time or wait until the valuation looks fair again. I&#39;ll be watching the management&#39;s operational decisions and the earnings results to monitor my investment as such.</body></html>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>PayPal: Operational Challenges Ahead, But Exceptionally Undervalued</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPayPal: Operational Challenges Ahead, But Exceptionally Undervalued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-12-19 17:31 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummaryPayPal is a leading online payment platform with a strong business presence.The company faces competition from other payment providers in the market.The article provides an overview of PayPal's...\n\n<a href=\"https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4585":"ETF&股票定投概念","SQQQ":"纳指三倍做空ETF","BK4534":"瑞士信贷持仓","LU2089284900.SGD":"Allianz Global Sustainability Cl AM Dis H2-SGD","BK4533":"AQR资本管理(全球第二大对冲基金)","BK4227":"交易和支付处理服务","BK4566":"资本集团","QID":"纳指两倍做空ETF","LU1861217088.USD":"贝莱德金融科技A2","BK4524":"宅经济概念","BK4535":"淡马锡持仓","BK4527":"明星科技股","LU1861220207.SGD":"Blackrock FinTech A2 SGD-H","BK4588":"碎股","LU0158827948.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"A\" (USD) INC","PSQ":"纳指反向ETF","LU2089283258.USD":"安联环球可持续基金Cl AM Dis","BK4551":"寇图资本持仓","QLD":"纳指两倍做多ETF",".IXIC":"NASDAQ Composite","QQQ":"纳指100ETF","BK4581":"高盛持仓","TQQQ":"纳指三倍做多ETF","LU2023251221.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"AM\" (USD) INC","BK4106":"数据处理与外包服务","BK4554":"元宇宙及AR概念","PYPL":"PayPal"},"source_url":"https://seekingalpha.com/article/4658581-paypal-operational-challenges-ahead-but-exceptionally-undervalued","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2392210899","content_text":"SummaryPayPal is a leading online payment platform with a strong business presence.The company faces competition from other payment providers in the market.The article provides an overview of PayPal's valuation and perspectives on its future growth.I rate the stock a Buy and consider it a great value opportunity with a current defensive fair value of around $80.PayPal Headquarters San JoseJasonDoiyIntroductionI have noticed recently that PayPal (NASDAQ:PYPL) is exceptionally undervalued, with the stock price down over 80% from its all-time high.PayPal Price Return HistorySeeking AlphaThis presents a huge opportunity, but the investment has risks. The changing fintech landscape creates a problematic environment for the company to adjust to and remain relevant in. By looking critically at PayPal's ecosystem, fundamentals, valuation, and peer comparisons, I've concluded that this is one of the best value investments available on the market. The primary concern I have relates to the company's future growth prospects.PayPal's Business OverviewPayPal is an international leader in online payments. The company was initially established as Confinity in 1998 before merging with Elon Musk's X.com in 2000 and being renamed PayPal in 2001. It was initially particularly successful due to its efficient, user-friendly digital transaction capabilities. In 2002, the company was acquired by eBay (EBAY), and it became its primary payment method. In 2015, PayPal was spun off as its own independent business, partly to facilitate its expansion and operations beyond eBay. The company is most commonly known as an integrated payment services provider, and it has acquired various companies in its evolution, including Venmo, a popular payment app in the U.S.The company's main revenue streams include transaction fees, cross-border fees, merchant services, fees and interest on loans, subscription fees, Venmo, partnerships, integrations, and foreign currency exchange.PayPal Business Model InfographicPayPal Annual Report 2022While significant differences exist between these revenue streams, they can be broken down into two simpler segments. The first is 'transaction revenues', and the second is 'other value-added services.'PayPal Revenue Segments - InfographicGuruFocusThe 'value-added' services would include partnerships with financial institutions or e-commerce platforms, merchant interest and fees, and consumer credit products.As of 2023, PayPal's payment volume has increased 10.8% since 2021, standing at $376.54bn in Q2 2023. The total payment volume then reached $387.7bn in Q3 2023. The same source used to gather the Q2 payment volume data (DemandSage) also presents that 431 million people worldwide use PayPal as of 2023. This presents a picture where PayPal is arguably dominant, with 40.52% of the market share in the payment services industry. However, I think this needs to be revised. As we will see in my competitive analysis, the payments industry is a large and diverse space. PayPal also indirectly competes with Apple (AAPL) Pay, Visa (V), and Mastercard (MA) for transaction volume.One of the most significant reasons for the stock dropping in 2021 was a rapid decline in operating profit, starting in Q3 2021. This was as revenue decreased at a much slower rate.PayPal Operating Income Vs. Total Revenue ChartAuthor, Using Seeking AlphaPart of the expense issues that would have led to decreased operating income could be related to the company's setback when eBay transitioned to its own payment provider, known as 'Managed Payments,' in June 2021. This significantly reduced PayPal's transaction volume. By Q2 2021, eBay contributed under 4% of PayPal's volume, a 512 basis point reduction from Q2 2020.Competitive AnalysisPayPal's main competitors, based on my research, are Apple Pay, Square (SQ), and Stripe, among others. Yet, the company also faces wider, indirect competition from leading payment providers like Visa and Mastercard.Taking a comprehensive look at PayPal's main competitors ranked based on historical market cap presents an issue where most of PayPal's larger indirect peers dominate it based on the power of resources to innovate:PayPal Market Cap Peer Comparison ChartAuthor, Using Seeking AlphaLet's look at the peers again to comprehend the different revenues fully. I removed Apple because it has a much broader operational focus than the four remaining companies:PayPal Revenue Peer Comparison ChartAuthor, Using Seeking AlphaThere's a powerful observation here to be made. PayPal, although it has a market cap of around $453bn less than Visa, takes in just $3.52bn less in revenue at the moment.This significant discrepancy is foundational to why PayPal could be considered a value opportunity. Yet, the reality is more nuanced than this, with specific future operational challenges that could thwart PayPal's price return performance.PayPal Vs. Visa P/E GAAP Chart*Indirect Competitors (Author, Using Seeking Alpha)PayPal is valued weakly at the moment for some specific reasons, but my analysis shows that these reasons are exaggerated in the stock price. The greatest of these is the heightened competition, especially as PayPal's innovations quickly get adopted by its peers.For example, look at the organization's Buy Now, Pay Later scheme, which saw massive uptake but has recently been copied by Square, Stripe, and Apple Pay Later.PayPal’s buy now, pay later (BNPL) program spurred strong checkout volume and TPV increases. It’s offered nearly 200 million loans to almost 30 million customers globally since launching in 2020. The program is available at about 300,000 merchants worldwide. - Insider IntelligenceOne of the most profound considerations I think PayPal will face in the coming years is how to remain relevant in a highly saturated and innovative market. The adoption of AI in the payments sector is undoubtedly going to create new companies with new availabilities. If organizations with significant moats based on advanced technology appear, PayPal may lose substantial market share.To combat this, PayPal is focusing on integrating AI and has already done so for quite a while. Its core segments that have integrated such capabilities so far are security and customer service. For example, AI is used in the PayPal chatbot assistant, in error prevention, and to support staff. Fraud detection systems built on pattern recognition and complex artificial intelligence to combat AI identity creation are also areas the company is ramping up on.Valuation PerspectivesA discounted cash flow analysis of PayPal reveals it to be around 30% undervalued if we take the 10-year average EPS w/o NRI growth rate. However, I want to look at a more pessimistic view because PayPal's long-term revenue growth has slowed. If I were going to be generous and assume the company can innovate and grow from here, I might use a 10% annual growth rate:PayPal DCF CalculationAuthor, Using GuruFocusI have done this because the 10-year EPS w/o NRI average annual growth rate is 15.50%. Considering the 3-year rate is 6.80%, 10% seems optimistic on the surface.PayPal Growth RatesGuruFocusA more pessimistic DCF calculation could look as such:PayPal DCF Calculation Low EndAuthor, Using GuruFocusWhile that assumes growth to be slowing based on long-term trends, this is only part of the picture. In the last year, the EPS w/o NRI has shot way up:PayPal EPS w/o NRI TrendGuruFocusPayPal Growth Rates (2)GuruFocusIf the analyst estimates are correct, assuming a 15% growth rate may be more fair. If so, we're looking at a 28.11% undervaluation in the current stock price:PayPal DCF Calculation High EndAuthor, Using GuruFocusThese scenarios do not price in a potentially continued relevance and growth to PayPal a decade out, in which the terminal value growth could increase significantly. However, due to the current competition risks, it is speculative to assume a higher growth rate and more sensible and defensive to use a standard 4%.Let's also review the company based on EPS and stock price to give a more detailed visual of the price-to-earnings picture:PayPal Price Return Vs. EPSAuthor, Using Seeking AlphaAnd there we have it: we can see the undervaluation nicely exhibited in the share price lag in catching up with the new EPS after the COVID-19 boom and decline. I'm asking myself, 'Will the EPS growth be maintained?'. It's uncertain, but the shares look undervalued even if the EPS is only kept steady. If the investment adds up to a growth and value play, that's two in one in my books.From reviewing these perspectives, I would say the fair value of incorporating analyst estimates into the DCF calculation and a defensive approach would be around $80 right now.RisksThere are some important risks that I need to consider when evaluating this stock and understanding whether PayPal can reach my defensive $80 fair value. Yet, I think my estimate is, as I say, defensive. Partly because I predict that the company's continued innovation will push growth and drive revenue so that this isn't purely a value trade but a value investment.One of the specific operational difficulties the organization has faced recently includes Venmo being taken off Amazon as of 01/10/2024. While nowhere near as big a hit as PayPal being removed as the primary payment system on eBay in 2021, this will hurt the company's revenue.In addition, the company is under new management. As of September 2023, Alex Chriss, is the new CEO and President of PayPal. Jamie Miller is now the new Executive Vice President and Chief Financial Officer as of November 2023. Multiple other leadership changes have been made, and under this new management, the focus is on operational efficiency, profitability, innovation, market positioning, and a customer-centric approach. The risk is whether the new leadership can pull of the significant adaptations needed in order to drive the revenue growth to pull past a defensive fair value estimate in the long term.I do think it is significantly unlikely for PayPal to not have a price rebound in the short-to-medium term. The only way I can realistically see this happening is a significant shock in reduced revenues or operational hazards that create poor margin results. It seems unlikely, given the company's management shifts, intentions, and already evidenced strong financial results recently mentioned above.However, one of the important notes I have made to myself is that the company is carrying a significant level of liabilities as compared to previously. For evidence, total liabilities were 52% of the assets in 2015 but are 74% today. This is likely caused by and also could be a hindrance in financing innovation efforts to remain competitive with the significant peers outlined above. Such a high level of liabilities could hinder its mobility to finance large, expensive projects later on.ConclusionIn my opinion, this is a fantastic opportunity. I can't see a better value investment on the market right now, and I own the shares as of just a few days ago. I'm convinced this is one of the more stable value investments to make at the moment. My only question is whether I'll hold it for a long time or wait until the valuation looks fair again. I'll be watching the management's operational decisions and the earnings results to monitor my investment as such.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":5,"commentSize":0,"repostSize":1,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.5","shortVersion":"4.22.5","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2392210899"}