To The Moon

Terminal Growth rate:

I have incorporated a terminal/perpetuity growth rate of 2.1% into my projection, drawing this figure from the International Monetary Fund's data on the real GDP growth rate for the United States.

Relative Valuation Method:

Employing the exit EV/EBITDA multiple method, I determined the median EV/EBITDA of PayPal's peers through a Comparable Company Analysis, resulting in a figure of 16.5x. The outcomes of this analysis are noteworthy. The implied share price stands at 161.59, indicating an implied upside of 156%. Additionally, the 5-year implied EV/EBITDA is projected to be 38.5x.

1. Risks and mitigation

Cryptocurrency Risks:

PayPal introduced its own stablecoin (PSYUSD) in the absence of a comprehensive Federal framework for regulating and enforcing such assets. This move has faced political scrutiny, with figures like Maxine Waters emphasizing the necessity for Federal oversight and enforcement.

Mitigation:

PayPal has a positive track record of collaboration with regulators. Additionally, PayPal, alongside its stablecoin custodian Paxos, has implemented essential precautions, such as Anti-Money Laundering (AML) checks and the suspension of tokens associated with sanctioned entities.

Macro Pressures on Consumer Spending: In the face of inflationary pressures, discretionary spending has taken a hit, impacting various industries, including PayPal. Evolving post-pandemic spending patterns add further complexity. This necessitates strategic adjustments from PayPal to align with new market dynamics and consumer behaviors. Their ability to effectively navigate these multifaceted challenges will determine their future success. Mitigation:

Despite inflationary headwinds and rising interest rates, PayPal displayed remarkable resilience in Q2, achieving an 11% increase in Total Payment Volume (TPV) to $376.5 billion. Notably, Year-to-Date (YTD) Earnings Per Share (EPS) grew by a robust 25%. This sustained double-digit TPV growth trajectory, initiated in Q2 2022, underscores PayPal's ability to navigate complex macroeconomic environments and achieve continued success.

Fierce & Growing Competition:

PayPal's historically advantageous competitive standing is facing erosion due to intense rivalry from Apple Pay, Stripe, Ayden, and a perceived decline in market share to alternative e-commerce checkout solutions. Furthermore, Google and Amazon are expressing a keen interest in venturing into this sector, with the latter leveraging its established expertise in the domain

Mitigation: PayPal's introduction of its stable coin and crypto wallet is a strategic maneuver aimed at reigniting the expansion of its user base. Recognizing the swift growth and appeal of Apple Pay, especially among younger consumers, PayPal has collaborated with Apple to seamlessly integrate its payment solutions into the Apple ecosystem. The establishment of robust partnerships with prominent entities such as Etsy, Shopify, eBay, Adobe, and Booking.com reflects the company's commitment to fostering enduring relationships that withstand the test of time.

1. ESG assessment

ESG Rating overview

Sustainalytics → Sustainalytics is a leading independent ESG and corporate governance research, ratings and analytics firm that supports investors around the world with the development and implementation of responsible investment strategies

Refinitv → LSEG recognizes the increasingly critical importance of transparent, accurate and comparable environmental, social and governance (ESG) data and analytics for the financial industry. We strive to be the trusted and preferred partner in the transition to sustainable finance and are committed to bringing to the market an array of best-in-class data, analytics and workflow solutions, which allow customers to use LSEG data as the backbone of their investment processes.

MSCI ESG → ESG methodology documents describe the calculations, data inputs, and processes followed by MSCI ESG Research to maintain ESG methodologies.

In 2019, PayPal engaged in its inaugural Environmental, Social, and Governance (ESG) Materiality and Prioritization Assessment with SustainAbility. The comprehensive three-phase approach began with a Research & Landscape Assessment, analyzing existing programs, peer performance, and global ESG trends. Utilizing inputs from SASB, GRI, TCFD, U.N. SDGs, and others, PayPal identified 19 key ESG topics.

The Stakeholder Mapping & Engagement phase involved 130 stakeholders, including senior leadership and a global employee survey. External engagements included discussions with NGOs, peer companies, financial health experts, and investors, providing valuable insights.

The Topic Analysis & Prioritization phase categorized ESG topics based on impact, stakeholder concern, perceived performance, influence, and societal/environmental impact. The materiality matrix emphasized the centrality of PayPal's mission and values, guiding its ESG strategy.

Aligned with the U.N. Sustainable Development Goals (SDGs), PayPal makes a direct, positive contribution to 10 of the 17 SDGs, emphasizing goals related to economic rights, employment, financial access, transaction cost reduction, and effective partnerships. This assessment underscores PayPal's commitment to responsible business practices, social innovation, employee well-being, and environmental sustainability, forming the basis for its ESG strategy.

PYPL ESG Materiality Matrix

Sources

https://s201.q4cdn.com/231198771/files/doc_financials/2023/q3/PYPL-Q3-23-Investor-Update.pdf

https://investor.pypl.com/financials/quarterly-results/default.aspx

https://s201.q4cdn.com/231198771/files/doc_financials/2023/q3/11/PayPal-s-Q3-2023-Earnings-Analyst-Call.pdf

https://s201.q4cdn.com/231198771/files/doc_financials/2023/q2/PYPL-Q2-23-Investor-Update.pdf

https://app.tikr.com/

https://www.imf.org/en/Countries/USA

https://www.mordorintelligence.com/industry-reports/global-ecommerce-market#:~:text=The%20E%2DCommerce%20Market%20size,as%20the%20internet's%20penetration%20increases

https://investor.pypl.com/esg-strategy/default.aspx

https://www.morningstar.com/stocks/xnas/pypl/sustainability

https://www.sustainalytics.com/esg-rating/paypal-holdings-inc/1007990978

https://newsroom.paypal-corp.com/2022-10-27-A-Peek-Inside-PayPals-Two-Sided-Network-of-Consumers-and-Businesses

https://www.pymnts.com/news/ecommerce/2023/amazon-pays-faster-merchant-payouts-expands-2-sided-network-into-open-ecosystem/

https://financefeeds.com/paypal-stock-rises-after-revealing-its-own-cryptocurrency-paypalusd/

https://newsroom.paypal-corp.com/2023-04-04-PayPal-Adds-New-Features-to-Its-Complete-Payments-Solution-for-Online-Small-Businesses

https://ecommercenews.eu/paypal-introduces-passkeys-in-germany-and-the-uk/

https://www.bankingday.com/paypal-introduces-passkeys-in-australia

*Do note that all of this is for information only and should not be taken as investment advice. If you should choose to invest in any of the stocks, you do so at your own risk.

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