PayPal is a Profitable Growth Stock with New Management

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PayPal's revenue growth has been impressive, with a 21% increase in 2020 compared to the previous year.

The company's new management team, led by Dan Schulman, has been instrumental in driving this growth.

Schulman's experience in the payments industry has been a major asset, helping PayPal expand its services and customer base.

PayPal's focus on innovation has led to the development of new products and services, such as its peer-to-peer payment service, Venmo.

Achieving Solid Growth

PayPal's growth is a testament to its ability to stay competitive in a crowded market. Despite increasing saturation in the fintech space, PayPal achieved a 6% top-line growth to $7.8 billion in its recent Q3 report.

The company's total payment volume (TPV) increased by 9% year-over-year, driven by branded checkout, Venmo, and Braintree. PayPal's partnerships with companies like Fiserv, Adyen, and Global Payments also supported its Fastlane initiative, which simplifies checkout processes across merchant platforms and drives TPV growth.

Credit: youtube.com, Why PayPal (PYPL) Could Be a Top Stock for 2025! Paypal (PYPL) Stock Analysis Valuation #paypal

PayPal's branded checkout continues to be a key factor in increasing the company's overall transaction volume. Innovations like new mobile and desktop checkout experiences raised conversion rates by over 100 basis points for vaulted checkouts and up to 400 basis points for one-time checkouts.

Here are some key statistics that highlight PayPal's growth:

PayPal's growth is not limited to revenue expansion; the company has also seen margin expansion, with its adjusted operating margin reaching 18.8%, up 194 basis points compared to the previous year.

Investment Analysis

PayPal's market capitalization is a staggering $60.47 billion, giving us an idea of its massive size.

The company's Price to Earnings (P/E) ratio of 14.38 suggests that PayPal trades at a valuation that implies efficiency in earnings generation. This ratio has actually decreased slightly to 14.66 when adjusted for the last twelve months as of Q1 2024, indicating stability in its earnings outlook.

PayPal's management has been actively engaged in share buybacks, signaling confidence in the company's future. This move is a positive sign for investors.

Smartphone displaying PayPal logo next to laptop with online shopping site open.
Credit: pexels.com, Smartphone displaying PayPal logo next to laptop with online shopping site open.

The company's low P/E ratio relative to near-term earnings growth presents a potentially attractive opportunity for value investors. Analysts predict profitability for PayPal this year, which is consistent with the firm's profitable track record over the last twelve months.

Here are some key statistics to consider:

PayPal does not pay a dividend, which may appeal to investors who prioritize capital growth over income. This is an important consideration for those evaluating the company's investment potential.

PayPal's Current Status

PayPal's revenue has been steadily increasing, reaching $25.4 billion in 2020, up from $17.8 billion in 2018.

The company's net income has also seen significant growth, with a net income of $3.9 billion in 2020, a 35% increase from 2019.

PayPal's payment volume has surpassed $1 trillion, with an average of 2.3 billion transactions per quarter in 2020.

The company has been expanding its services, including the acquisition of iZettle, a Swedish payment company, in 2018.

Close-up of hands using a credit card and laptop for online payment at a desk.
Credit: pexels.com, Close-up of hands using a credit card and laptop for online payment at a desk.

PayPal's user base has also grown, with over 340 million active accounts as of 2020.

The company's management has been making efforts to improve its platform, including the introduction of a new rewards program in 2020.

PayPal's stock price has been on the rise, with a 52-week high of $240.95 in 2021.

Key Information and Insights

PayPal's market capitalization stands at $83B as of July 18th.

The company has a 52-week low of $58.95 and a 52-week high of $103.3, with its current trading price at $74.4.

PayPal trades at a TTM EV/EBITDA of 15.9x, significantly lower than its 5-Year average of 40x.

Its TTM Price / Earnings ratio is 31.5x, also lower than its 5-Year average of 54x.

PayPal's performance has smashed the S&P 500 during the COVID era.

The company's latest global market share for Android mobile operating system stands at 70.8% vs 28.4% for Apple, as per Statista.

PayPal's management has been actively engaged in share buybacks, signaling confidence in the company's future.

Credit: youtube.com, Stock Analysis: PayPal - Key Information

The company's P/E ratio, when adjusted for the last twelve months as of Q1 2024, is 14.66, indicating stability in its earnings outlook.

PayPal does not pay a dividend, which may appeal to investors who prioritize capital growth over income.

Analysts predict profitability for PayPal this year, consistent with the firm's profitable track record over the last twelve months.

PayPal's Features and Competitors

PayPal claims to have the highest acceptance at merchants, the highest conversion rates, and the lowest loss rates for merchant partners. Its add-on services like rewards, discounts, promotions, and Buy Now, Pay Later ("BNPL") enhance its offering.

PayPal partnered with Apple Pay to tap into its Tap to Pay technology (NFC) and allow consumers in the US to use PayPal and Venmo on their Apple Wallet. This move is a solid strategy to capture customers who prefer using their Apple devices.

The Digital Payments market is projected to reach $9.46T in 2023 and $14.78T by 2027, with a compound annual growth rate ("CAGR") of 11.8%. This growth is driven by the increasing demand for digital payment solutions.

Branded Checkout

Credit: youtube.com, 🎉 NEW FEATURE: PayPal on Checkout Anywhere

PayPal's Branded Checkout is a powerhouse, contrary to what many people think. It's the bread and butter of PayPal, accounting for 30% of its total transaction processing volume (TPV) of $1.36T in 2022.

PayPal's Branded Checkout TPV grew by 5% in 2022, which is impressive considering the ecommerce retail market grew by 7.1% during the same period. And in Q1'23, the growth accelerated to 6.5% year-over-year.

PayPal's digital wallet acceptance among the largest retailers in North America and Europe grew faster than its peers, reaching 79% in 2022. This is a significant milestone, especially when compared to Google Pay, which has a similar growth rate.

PayPal is the #1 software in payment processing, with a market share of 40.5%, according to Datanyze. This is a testament to its scale and dominance in the industry.

The growth in high-margin Branded Checkout is far from over, and management has repeatedly stated that despite losing market share in certain markets, their overall position is on a "holding or gaining" share.

PayPal vs Apple Pay

A mobile phone with OXXO Pay on a laptop used for online shopping.
Credit: pexels.com, A mobile phone with OXXO Pay on a laptop used for online shopping.

PayPal vs Apple Pay is a heated debate, and it's clear that Apple Pay is gaining ground. It has the network, trust, and reliability to compete with PayPal, and its near-field communication (NFC) technology is a major advantage.

PayPal claims to have the highest acceptance at merchants, but Apple Pay has a strong advantage with its NFC chip. This technology enables contactless payments, making it a convenient option for consumers.

PayPal partnered with Apple Pay to tap into its Tap to Pay technology and allow consumers to use PayPal and Venmo on their Apple Wallet. This is a smart move, as it allows PayPal to reach a wider customer base.

The total transaction value in the Digital Payments market is projected to reach $9.46T in 2023 and $14.78T by 2027, with a compound annual growth rate (CAGR) of 11.8%. This shows just how huge and growing the market is.

Apple Pay has leverage in this partnership, but it's a mutual relationship that benefits both parties. PayPal's unbranded checkout flows are an option when online stores use Apple Pay, which is a win-win situation.

With ~70% of mobile operating systems being Android, it's clear that this is not a "winner takes all" situation. PayPal is expanding its Tap to Pay functionality to its wider customer base, starting with its rollout on Android for Venmo and PayPal Zettle users in the US.

Braintree & Unbranded Processing

Credit: youtube.com, Inside Paypal's Billion Dollar Battle For Payment Processing Dominance

Braintree & Unbranded Processing is a key area of focus for PayPal, with a TPV growth rate of 40% in 2022 and 30% in Q1’23. The segment is led by Braintree, a full stack processor with a growth rate of 42% in Q1’23.

PayPal is taking share from competitors like Stripe and Adyen, with management stating that they are winning deals through their bundled value position and integrated offering. In fact, PayPal has better auth rates than peers, resulting in a higher percentage of transactions passing through and resulting in a complete payment.

Braintree has a take rate of 1.25%*, significantly lower than Adyen's 1.16% in 2022 and Stripe's 1.85% in 2021. Despite the lower take rates, Adyen is profitable at EBITDA margins of ~8%-11%, while Stripe generated an EBITDA margin of 4% in 2021 and was loss making in 2022.

The take rate of Unbranded processing (includes Braintree) is estimated to be within 0.9% - 1.25%, indicating that PayPal differentiates on bundling and offers an attractive price. This is supported by the fact that PayPal's TPV of Venmo stood at $245B in 2022 and generates over $100M per month, with an implied take rate of 0.5%.

PayPal is expected to tap into a new unbranded total addressable market of ~$750B with the launch of PayPal Complete Payments (PPCP), which will allow it to serve SMBs and regions like Europe, driving margins higher.

Venmo

Woman using TAN generator for secure online payment on laptop, enhancing cybersecurity.
Credit: pexels.com, Woman using TAN generator for secure online payment on laptop, enhancing cybersecurity.

Venmo is a significant part of PayPal's strategy, with a TPV CAGR of 55% over 2018-2021. It's doing over $100 million of revenue every single month, growing at double digits.

The TPV growth decelerated in 2022 to 6.6%, but it accelerated sequentially in Q1’23 from 3% to 8.5%. This indicates that Venmo is still growing, albeit at a slower pace.

Monetization efforts have also started to play out well, with an increase of 33% in revenues to ~$1.2B from ~$900M revenues in 2021. This growth is expected to continue, with estimates suggesting more room for expansion.

The resulting take rate is estimated at 0.5%, up from 0.4% in 2021, but it's expected to increase further with the Tap to Pay partnerships on iOS and Android. This would eventually lead to a higher take rate, similar to Venmo's business profile transaction fees of 1.9% + $0.10 and 2.29% + $0.10 for contactless payments.

Person using computer for online payment with credit card.
Credit: pexels.com, Person using computer for online payment with credit card.

Out of the 90M US active accounts, 2/3 are monthly active, indicating that the app is part of their everyday life. This suggests that there's potential for take rate expansion and increased revenue.

Venmo has similar users as Cash App, which had 51M monthly transacting actives as of 31 December 2022. Despite this, Venmo's monetization is much lower, with an estimated revenue per monthly active of ~$21 in 2022, compared to Cash App's ~$69.

Frequently Asked Questions

What is the future prediction for PayPal stock?

Based on 29 Wall Street analyst forecasts, the average predicted price for PayPal stock in 12 months is $91.08, with a possible range of $75.00 to $110.00. Check our latest updates for more detailed insights into PayPal's future stock performance.

Teresa Halvorson

Senior Writer

Teresa Halvorson is a skilled writer with a passion for financial journalism. Her expertise lies in breaking down complex topics into engaging, easy-to-understand content. With a keen eye for detail, Teresa has successfully covered a range of article categories, including currency exchange rates and foreign exchange rates.

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