PayPal’s current crisis and appeal


PayPal in my two books

In my book “The Rules of Super Growth Stocks Investing“:

  • In sections 3-5, pages 208-215, when introducing the new growth industries of financial technology, the company PayPal (ticker: PYPL) is used as an example. Pages 210-213 in Sections 3-5 provide a detailed introduction to the operations of PayPal, the company’s products, and its achievements.

In the book “The Rules of 10 Baggers“:

  • Section 5-7, pages 247-251, the entire section is dedicated to introducing the company Block (ticker: SQ) and also mentions the comparison and differences with PayPal.
  • On page 299 of Section 6-5, PayPal is used as an example to illustrate the impact of the company’s financial guidance and outlook on stock prices.
  • Pages 160-161 of Section 3-5 illustrate the dominance of an e-commerce platform giant like Amazon (ticker: AMZN) and its huge influence on the payment industry. Readers may also refer to my other post for a detailed explanation of this topic: “Amazon’s dominance by its economic scale, impact share price of PayPal, Affirm, Fair Isaac, Visa, and Mastercard“.

How bad is it?

The pandemic catalyst is no longer

In the two or three years before 2021, PayPal’s stock price, like most technology stocks, has repeatedly hit new highs. Since the company’s listing, it has coincided with the 13-year bull market that has been rare in the U.S. stock market. In addition, consumers during the COVID-19 epidemic have preferred to use electronic transfers and e-commerce shopping to avoid exposure to infection. These two factors can be said to be the catalyst for PayPal’s stock price. . After 2021, encountering rising interest rates and a bear market, the stock price has been falling all the way, with no sign of bottoming out.

The stock price fell 82.7%

The most important thing is that since the COVID-19 epidemic, the company’s stock price has repeatedly dropped to new lows from its highest point; it has dropped 82.7% from its highest point in July 2021, and no rebound has been seen during the more than two years of decline. sign.

CEO performance disappointing

Performance and attitude

Current CEO Dan Schulman most recently served on the American Express management team, where he was responsible for global strategies to expand alternative mobile and online payment services, establish new partnerships, and build traditional card and travel Sources of income outside of business. Those who have run major departments of large financial technology companies should be very familiar with this industry. But it turned out that he was very disappointed with his current investors.

Multiple changes to financial forecasts

In the past three years, PayPal has not only repeatedly withdrawn the company’s previously announced financial forecasts, business goals, and mid-term operating outlook; it has also arbitrarily changed the company’s long- and short-term goals. There have been many changes to financial forecasts, especially downward revisions, which will cause irreparable damage to the stock price each time. However, PayPal’s current CEO has chosen to repeatedly lower its financial forecasts, regardless of the interests of shareholders and the company’s image.

I have explained this part in detail on page 299 of Section 6-5 of my book “The Rules of 10 Baggers“.

Board of directors take actions

The CEO was unable to come up with any concrete plans and showed a nonchalant attitude, at least in the eyes of investors, that he could not come up with a solution. All this really irritated long-term investors. Even the board of directors finally couldn’t stand it anymore and took action against PayPal’s management team. In February and March of this year, they announced that both CEO and CFO Blake Jorgensen would resign. But because PayPal is a very large financial technology company, it was unable to find a successor for a while, so he had to stay in his position temporarily and wait for the handover.


Fortunately, in August, the board of directors announced that the former Alex Chriss, who was in charge of the Small Business and Self-Employed group department of Intuit (ticker: INTU), would replace PayPal’s current CEO on September 27, 2023. CEO. The company’s stock immediately staged a celebratory rally of 2.83% that day, reflecting how eager investors were for such a belated and necessary change.

Regarding Intuit, please see my other previous post for a detailed introduction: “How does Intuit, the leader in financial management software for individuals and small businesses, make money?“.

Change is not easy

Next, Alex Chriss must face the many messes left by former CEO Schulman. It can be said that they are all very difficult problems, and none of them are easy. If the new CEO can’t turn the company around in the short term, PayPal’s future will be very bleak.

PayPal’s advantage remains

Investors need not despair

When it comes to electronic payments, it’s hard to deny PayPal’s place in the industry. It has been a trusted name in the field for over two decades. ​

However, slower growth due to macro uncertainty has led to more pessimistic market sentiment. Shares of the leading fintech company are currently 83% below their peak. Maybe this is a potential investment opportunity. ​

But before buying the stock, smart investors need to know here are some of the benefits of PayPal. ​

The platform has formed a scale

PayPal processed $1.36 trillion in total payment volume (TPV) in 2022 and currently has 431 million active accounts. This speaks to its massive size, but there are many different parts of the business that are worth understanding. ​

Investors are probably most familiar with the PayPal button, which is known as Branded Checkout. I’m sure many readers find themselves using this option when shopping online. In 2022, it represents 30% of total TPV.

Braintree, acquired in 2013 for $800 million, is PayPal’s unbranded checkout service focused on serving merchants. While its profit margins are typically lower than branded checkouts, they are growing faster. Braintree’s TPV will be approximately $400 billion in 2022, on par with brand checkouts. ​

We can’t forget Venmo, a popular peer-to-peer payments service that processed $245 billion in TPV last year. Management is focused on finding ways to monetize the platform. A key part of this is increasing the number of users who sign up for a Venmo debit or credit card. ​

Strong financial strength

The stock’s sharp decline can make you overlook PayPal’s profitability. Its non-GAAP operating margin was 21.4% last quarter (second quarter 2023 ended June 30). Over the last 12 months, the company generated $3.7 billion in free cash flow. This is encouraging for investors in the fintech space, as many companies are far from achieving positive returns. ​

The excess cash was used to aggressively buy back stock. In the past four quarters alone, PayPal’s outstanding shares have decreased by 4%. Existing investors will benefit from higher earnings per share, which should help drive the share price higher. ​

The reason why PayPal has such a strong financial position has to do with its business model. Now that the technical infrastructure has been basically built, capital expenditures are not too high. This large-scale operation has brought considerable profits. ​

Competition is fierce

To say that PayPal faces stiff competition in the payments space would be an understatement. Braintree competes with companies like Adyen (ticker: ADYYF ) and privately held Stripe, both of which have seen huge success and are adopted by merchants around the world. In addition, e-commerce platforms such as Shopify (ticker: SHOP, please see my post for Shopify company discussion “Shopify, the only rival admitted by the founder of Amazon, how does it make money?“) and Wix (ticker: WIX) may overlap with certain services provided by Braintree. ​

Competition is likely to be fiercer when it comes to the consumer-facing side. Block’s Cash App (please see my post for Block company discussion “You should know the company Square (rebraned to Block)“) goes head-to-head with PayPal’s branded digital wallets and Venmo. Cash App’s gross profit in 2022 will be $3 billion, far exceeding the $935 million in total revenue Venmo expected last year. This is a clear sign that Cash App is doing a better job of monetizing the platform. ​

PayPal also has to contend with dominant tech companies like Apple (ticker: AAPL ) and Alphabet (ticker: GOOGL ). These companies are well-positioned because they not only offer popular digital wallets but also control two of the most powerful smartphone operating systems. ​

Low valuation

With the stock currently trading 83% below its peak price, bullish investors have an opportunity to buy into PayPal at a forward P/E of just 15 times. This is the cheapest share price since PayPal went public. The business was spun off from eBay (ticker: EBAY) in 2015, and the current price is really a good deal. ​

In fact, since the spinoff, PayPal stock has traded at an average price-to-earnings ratio of 49 times. It’s safe to say that investors have become completely disillusioned with the fintech company, likely due to slowing growth.


PayPal’s management team has a lot to explain to investors. The company still has a certain degree of competitiveness and needs to open up a larger market. Investors should be able to make more informed decisions about stocks after understanding the four advantages above.

credit: Wiki

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