To The Moon

Summary

PayPal (PYPL)'s $PayPal(PYPL)$ fourth-quarter performance was not bad, but the stock price plummeted due to the unsatisfactory new active users and the failure to provide expectations for revenue growth for the whole year of 2023.

However, both P/S and EV/Sales are close to a 5-year low, indicating that the current stock price is undervalued.

Cat believes that the worst moment of PayPal (PYPL) is over, and it can slowly build positions and wait for value to return.

1. Analysis of Recent Financial Reports 

After trading on Thursday (Febary 10), PayPal (PYPL) released its fourth quarter of 2022 financial report.

Performance data show that PayPal (PYPL)'s revenue in the fourth quarter increased by 7% to $7.4 billion year-on-year, exceeding market expectations of $7.39 billion.

Net profit in the fourth quarter increased by 15% year-on-year to $921 million. Adjusted earnings per share increased by 11.71% year-on-year to $1.24, exceeding market expectations of $1.20.

In the fourth quarter, the number of payment transactions increased by 13% year-on-year to 6 billion, and the total payment amount (TPV) increased by 9% to $357.4 billion year-on-year.

In the fourth quarter, 2.9 million new active users were added, and the total number of active users increased by 2% year-on-year to 435 million.

The free cash flow in the fourth quarter was $1.4 billion, slightly lower than the free cash flow in the previous quarter, but remained above $1 billion.

According to the data disclosed, PayPal (PYPL) performed well in the fourth quarter. Then why did the stock price plummet after the performance was announced? You will understand if the cat analyzes it.

2. Why is this so?

One of the important reasons for the sharp decline in the stock price after the announcement of PayPal (PYPL) performance is that the number of new active users did not meet market expectations.

In the previous year's financial report, PayPal (PYPL) gave guidance to add 20 million new active users in 2022.

However, due to the addition of only 400,000 new active users in the second quarter of this year, PayPal (PYPL) had to lower its forecast of new active users for the whole year of 2022 to about 10 million.

However, only 2.9 million new active users were added in the fourth quarter of 2022, which means that the number of new active users throughout the year is only 8.6 million, which is lower than market expectations.

This will undoubtedly make the market worry about whether PayPal (PYPL) will still be high-growth in the future, which will naturally put upward pressure on the stock price.

Another important reason for the sharp decline in the stock price after the announcement of PayPal (PYPL) performance is the failure to provide revenue growth expectations for the whole year of 2023.

Although in the profit guide, PayPal (PYPL) expects earnings per share to increase by 18% to $4.87 year-on-year in 2023, higher than the market expected $4.79.

However, the annual revenue growth forecast for 2023 is not mentioned, which is lower than the market expectation of $22.989 billion.

This has also caused the market to worry about the profit performance of PayPal (PYPL) in 2023, which will naturally put upward pressure on the stock price.

3. What should I do next?

To sum up, it is not difficult to see that the fourth-quarter performance of PayPal (PYPL) is not bad, but the new active users are a little unsatisfactory.

This may make the market slowly regard it as a value stock rather than a growth stock. Fortunately, the current valuation of PayPal (PYPL) is relatively cheap.

Both P/S and EV/Sales are close to a 5-year low, indicating that the current stock price is undervalued.

From the price behavior, it can also be seen that after nearly a year of sharp decline, the stock price of PayPal (PYPL) is also in a state of bottom range fluctuation.

Cat believes that the worst moment of PayPal (PYPL) is over, and it can slowly build positions and wait for value to return.

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