PayPal Holdings (NasdaqGS:PYPL) - Share price, News & Analysis

Q: What is the Fair Price of PYPL when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

PYPL ($71.47) is trading below our estimate of [[fair value]] ($160.75)

PYPL fundamental analysis
Snowflake Score
Valuation	5/6
Future Growth	5/6
Past Performance	2/6
Financial Health	5/6
Dividends	0/6

PYPL Stock Overview

PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide.

Rewards

Trading at 55.5% below our estimate of its fair value

Earnings are forecast to grow 23.08% per year

Risk Analysis

Profit margins (13.9%) are lower than last year (22.8%)

PayPal Holdings Competitors

Fidelity National Information Services

NYSE:FIS

US$57.5b

Visa

NYSE:V

US$415.6b

Mastercard

NYSE:MA

US$313.8b

Fiserv

NasdaqGS:FISV

US$58.8b

Price History & Performance

Summary of all time highs, changes and price drops for PayPal Holdings
Historical stock prices
Current Share Price	US$71.47
52 Week High	US$310.16
52 Week Low	US$69.77
Beta	1.39
1 Month Change	-16.13%
3 Month Change	-38.20%
1 Year Change	-75.48%
3 Year Change	-39.27%
5 Year Change	30.87%
Change since IPO	94.69%

Recent News & Updates

Jun 30

Pair Trade: PayPal Vs. Block

We are presenting a pair trade idea to benefit from the upside potential of PayPal relative to its peer Block. PayPal is growing faster and is not impacted by the cryptocurrency crash and its fallout. PayPal has way better earnings quality and trades at an extraordinary discount compared to how Block is valued. Article Thesis In this article, I'll lay out a pair trade idea that would combine a long position in PayPal Holdings, Inc. (PYPL) with a short position in Block, Inc. (SQ). My thinking is based on a way more reasonable valuation for PayPal, better earnings quality for PayPal, better growth momentum for PayPal, and Block's exposure to cryptocurrencies that should be a major headwind in the current crypto bear market, whereas PayPal is less exposed to cryptocurrencies. Reason 1 For PayPal Outperformance: Growth Momentum And Cryptocurrency Exposure PayPal has seen its shares drop significantly over the last year, which also holds true for Block. In PayPal's case, the share price drop was based on a too-high valuation one year ago, combined with the realization that its growth will not be maintained at an ultra-high level forever. Nevertheless, PayPal continues to grow, and at a faster rate than Block: Data by YCharts PayPal has delivered significantly better growth during the most recent quarter, with a 7% increase year over year, while Block's revenue dropped more than 20%. For the current quarter, a big difference in favor of PayPal is forecasted as well. Looking at the current fiscal year, PayPal is forecasted to grow 4x-5x as much as Block. Block will, when the analyst community is right, deliver negative growth in real terms this year once we account for a high-single-digit inflation rate, whereas PayPal will deliver at least some growth in real terms. PayPal's better revenue growth is partially driven by its smaller exposure to cryptocurrencies, whereas Block is heavily exposed to cryptocurrencies via its Bitcoin transactions. Block's cryptocurrency exposure allowed it to generate strong revenue growth during the crypto boom during the pandemic. But the volatile nature of the crypto universe leads to regular steep downturns, such as the one we are experiencing right now that has made Bitcoin drop from around $70,000 to less than $20,000. At the same time, cryptocurrency trading volume has declined, which is why Block's cryptocurrency exposure has turned into a major headwind for now. With lower Bitcoin prices and fewer transactions, that side of Block's business, which was seen as an important future growth driver by its leadership (hence the name change), will generate less revenue and less gross profit. Since operating expenses will likely not drop in line with the unit's revenue, operating leverage will likely work against Block when it comes to its crypto business. PayPal, with its more traditional business of facilitating transactions between users and more nuanced exposure to cryptocurrencies (e.g., via cryptocurrency firm Curv which it acquired this year), is not as vulnerable to the current crypto bear market and guides towards a compelling transaction volume growth rate in the mid-teens range this year. Reason 2 For PayPal Outperformance: Way Better Earnings Quality Most companies do report adjusted or non-GAAP earnings on top of reporting GAAP earnings. They explain the adjustments they make in their earnings releases. Some of those adjustments do generally make sense, e.g., when companies back out one-time gains on asset sales or one-time restructuring charges. Companies oftentimes back out another important item where it is way more questionable whether the adjustment makes sense: Share-based compensation. Share issuance to employees and management is oftentimes done by tech companies, and sometimes also by other companies. That makes sense, as it helps attract talent and since it aligns employee goals and shareholder goals, at least to some degree. Share-based compensation is thus not an issue per se, but investors should know that this comes at a cost. Even though share-based compensation is a non-cash item, it has a real impact on shareholder value, as existing shareholders get diluted over time. Block states that the company has earned $0.18 per share on an adjusted basis during the most recent quarter. That makes for $97 million in non-GAAP profit during the period. At the same time, Block has issued a massive amount of shares to its employees and management: Block 10-Q filing Issuing $275 million worth of shares over three months in order to generate $97 million of non-GAAP earnings is far from great. When we account for the massive share issuance, Block thus is not profitable at all. In fact, the company would have lost more than $175 million, or around $700 million annualized without issuing shares. Shareholders thus get diluted massively while no real value is created -- shareholder equity is only generated through stock issuance, not through actual earnings. PayPal is issuing shares as well, as is almost every tech company. But in PayPal's case, the issuance of new shares is way more in line with actual underlying profitability. PayPal earned $0.88 per share on an adjusted basis last quarter, which makes for $1.03 billion of non-GAAP profit. Over the same time, PayPal issued $429 million worth of shares to its employees, according to its 10-Q. Actual earnings, or SBC-adjusted earnings, were thus still very positive, at around $600 million for the period. In other words, Block issues around $2.80 in new shares in order to generate $1 in non-GAAP earnings, while PayPal issues around $0.40 in new shares in order to generate $1 in non-GAAP earnings. Share issuance, relative to non-GAAP profitability, is thus around 7x higher at Block. PayPal's earnings quality is by far not perfect, but it is massively better than that of Block, which has disastrously bad earnings quality from what I see when I look at its earnings statements. Reason 3 For PayPal Outperformance: Valuation No matter how one looks at the data, PayPal is by far the less expensive company of these two. When we look at GAAP EBITDA over the last twelve months, PayPal trades at roughly 1/16th of Block's valuation: Data by YCharts When we look at forward EBITDA estimates, using the analyst consensus (non-GAAP numbers), PayPal is trading at roughly one-fourth of Block's valuation. This does not yet account for the aforementioned weaker earnings quality at Block. Block could thus fall by 75%, or PayPal could rise by 300%, and the two companies would be valued in line with each other. I do believe that a steep drop in Block is more likely than a steep rise in PayPal, especially in the current interest rate environment where ultra-expensive growth stocks have a hard time. Even when we look at non-GAAP earnings per share estimates for the current year, even though those overstate Block's actual earnings power massively, Block looks expensive: It trades for 75x forward earnings, versus an 18x forward earnings multiple for PayPal, according to Seeking Alpha's data. In short, the company that is growing less and that has way weaker earnings quality is trading at a massive premium versus the faster-growing company with better earnings quality. I do believe that a positive return for PayPal, relative to Square, is thus very likely. This could happen via a 10% drop in PayPal and a 40% drop in Block, or it might happen via a 5% gain in PayPal and a 25% drop in Block. But in any case, PYPL outperforming SQ is likely, I believe. Risks To Consider PayPal will not necessarily perform well going forward, even though I do believe that it will most likely outperform Block. It is possible that both companies perform badly. Or, in case we get into a tech bull market (although I don't see good reasons for that in the current rising-rates environment), both companies might climb. Should Square come up with a new product or business that is highly attractive, its growth outlook and earnings quality might improve. This could lead to SQ outperformance which would work against this thesis. Due to Block's cryptocurrency focus, which is a headwind in the current "crypto winter" environment, I do not believe that new, revolutionary, highly profitable products or services by Block are very likely, however.

Jun 23

PayPal's Stock May Have Finally Bottomed

PayPal's stock has fallen sharply in 2022 and is beginning to show signs of stabilization. This is leading some traders to bet that PayPal's stock moves back into the mid-$80 range. There are some bullish divergences that have formed on the technical chart.

Jun 20

These 4 Measures Indicate That PayPal Holdings (NASDAQ:PYPL) Is Using Debt Reasonably Well

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says...

Jun 14

Today's Digital Money Bargain: PayPal

Over less than 12 months, PayPal has rapidly declined from its highest valuation since becoming an independent company in 2015 to its lowest. The stock now represents an interesting growth-at-a-reasonable-price selection. If the adoption of digital money continues at strong growth rates, both for smartphone and online transfers, PayPal could be a big winner during 2023-24.

Shareholder Returns

	PYPL	US IT	US Market
7D	-2.1%	1.7%	1.6%
1Y	-75.5%	-34.4%	-20.8%

Return vs Industry: PYPL underperformed the US IT industry which returned -34.9% over the past year.

Return vs Market: PYPL underperformed the US Market which returned -20.4% over the past year.

Price Volatility

Is PYPL's price volatile compared to industry and market?
PYPL volatility
PYPL Average Weekly Movement	8.8%
IT Industry Average Movement	9.9%
Market Average Movement	8.1%
10% most volatile stocks in US Market	16.8%
10% least volatile stocks in US Market	3.2%

Stable Share Price: PYPL is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 9% a week.

Volatility Over Time: PYPL's weekly volatility (9%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1998	30,900	Dan Schulman	https://www.paypal.com

PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides payment solutions under the PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy names. The company's payments platform allows consumers to send and receive payments in approximately 200 markets and in approximately 100 currencies, withdraw funds to their bank accounts in 56 currencies, and hold balances in their PayPal accounts in 25 currencies.

PayPal Holdings Fundamentals Summary

How do PayPal Holdings's earnings and revenue compare to its market cap?
PYPL fundamental statistics
Market Cap	US$82.77b
Earnings (TTM)	US$3.58b
Revenue (TTM)	US$25.82b

23.1x

P/E Ratio

3.2x

P/S Ratio

Is PYPL overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
PYPL income statement (TTM)
Revenue	US$25.82b
Cost of Revenue	US$14.10b
Gross Profit	US$11.72b
Other Expenses	US$8.14b
Earnings	US$3.58b

Last Reported Earnings

Mar 31, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	3.09
Gross Margin	45.38%
Net Profit Margin	13.87%
Debt/Equity Ratio	44.8%

How did PYPL perform over the long term?

See historical performance and comparison

We’ve recently updated our valuation analysis.

Valuation

Is PYPL undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

5/6

Valuation Score 5/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
PEG Ratio

Key Valuation Metric

Which metric is best to use when looking at relative valuation for PYPL?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for PYPL. This is calculated by dividing PYPL's market cap by their current preferred multiple.
What is PYPL's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$82.77b

PYPL key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	3.3x
Enterprise Value/EBITDA	17.4x
PEG Ratio	1x

Price to Earnings Ratio vs Peers

How does PYPL's PE Ratio compare to its peers?

PYPL PE Ratio vs Peers

The above table shows the PE ratio for PYPL vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	40.4x
FIS Fidelity National Information Services	63.2x	25.0%	US$57.5b
V Visa	30.9x	12.1%	US$415.6b
MA Mastercard	33.1x	14.7%	US$313.8b
FISV Fiserv	34.6x	18.4%	US$58.8b
PYPL PayPal Holdings	23.1x	23.1%	US$82.8b

Forward PE

Price-To-Earnings vs Peers: PYPL is good value based on its Price-To-Earnings Ratio (23.1x) compared to the peer average (40.4x).

Price to Earnings Ratio vs Industry

How does PYPL's PE Ratio compare vs other companies in the US IT Industry?

Price-To-Earnings vs Industry: PYPL is good value based on its Price-To-Earnings Ratio (23.1x) compared to the US IT industry average (27.2x)

Price to Earnings Ratio vs Fair Ratio

What is PYPL's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

PYPL PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	23.1x
Fair PE Ratio	45.8x

Price-To-Earnings vs Fair Ratio: PYPL is good value based on its Price-To-Earnings Ratio (23.1x) compared to the estimated Fair Price-To-Earnings Ratio (45.8x).

Share Price vs Fair Value

What is the Fair Price of PYPL when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: PYPL ($71.47) is trading below our estimate of fair value ($160.75)

Significantly Below Fair Value: PYPL is trading below fair value by more than 20%.

Price to Earnings Growth Ratio

PEG Ratio: PYPL is poor value based on its PEG Ratio (1x)

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Future Growth

How is PayPal Holdings forecast to perform in the next 1 to 3 years based on estimates from 49 analysts?

Future Growth Score

5/6

Future Growth Score 5/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

23.1%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: PYPL's forecast earnings growth (23.1% per year) is above the savings rate (1.9%).

Earnings vs Market: PYPL's earnings (23.1% per year) are forecast to grow faster than the US market (13.7% per year).

High Growth Earnings: PYPL's earnings are expected to grow significantly over the next 3 years.

Revenue vs Market: PYPL's revenue (13.9% per year) is forecast to grow faster than the US market (8.3% per year).

High Growth Revenue: PYPL's revenue (13.9% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: PYPL's Return on Equity is forecast to be high in 3 years time (21.4%)

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Past Performance

How has PayPal Holdings performed over the past 5 years?

Past Performance Score

2/6

Past Performance Score 2/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

24.1%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: PYPL has high quality earnings.

Growing Profit Margin: PYPL's current net profit margins (13.9%) are lower than last year (22.8%).

Past Earnings Growth Analysis

Earnings Trend: PYPL's earnings have grown significantly by 24.1% per year over the past 5 years.

Accelerating Growth: PYPL's has had negative earnings growth over the past year, so it can't be compared to its 5-year average.

Earnings vs Industry: PYPL had negative earnings growth (-31.3%) over the past year, making it difficult to compare to the IT industry average (21.4%).

Return on Equity

High ROE: PYPL's Return on Equity (17.4%) is considered low.

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Financial Health

How is PayPal Holdings's financial position?

Financial Health Score

5/6

Financial Health Score 5/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: PYPL's short term assets ($52.4B) exceed its short term liabilities ($44.0B).

Long Term Liabilities: PYPL's short term assets ($52.4B) exceed its long term liabilities ($11.2B).

Debt to Equity History and Analysis

Debt Level: PYPL's net debt to equity ratio (6.1%) is considered satisfactory.

Reducing Debt: Insufficient data to determine if PYPL's debt to equity ratio has reduced over the past 5 years.

Debt Coverage: PYPL's debt is well covered by operating cash flow (63.2%).

Interest Coverage: PYPL's interest payments on its debt are well covered by EBIT (22.5x coverage).

Balance Sheet

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Dividend

What is PayPal Holdings's current dividend yield, its reliability and sustainability?

Dividend Score

0/6

Dividend Score 0/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Future Dividend Coverage

Dividend Yield vs Market

Notable Dividend: Unable to evaluate PYPL's dividend yield against the bottom 25% of dividend payers, as the company has not reported any recent payouts.

High Dividend: Unable to evaluate PYPL's dividend yield against the top 25% of dividend payers, as the company has not reported any recent payouts.

Stability and Growth of Payments

Stable Dividend: Insufficient data to determine if PYPL's dividends per share have been stable in the past.

Growing Dividend: Insufficient data to determine if PYPL's dividend payments have been increasing.

Earnings Payout to Shareholders

Earnings Coverage: Insufficient data to calculate payout ratio to determine if its dividend payments are covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: Unable to calculate sustainability of dividends as PYPL has not reported any payouts.

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Management

How experienced are the management team and are they aligned to shareholders interests?

2.3yrs

Average management tenure

CEO

Dan Schulman (63 yo)

6.92yrs

Tenure

US$32,070,353

Compensation

Mr. Daniel H. Schulman, also known as Dan, has been the President of PayPal Holdings, Inc. since September 30, 2014 and has been its Chief Executive Officer since July 2015 and served as Chief Executive Of...

CEO Compensation Analysis

Compensation vs Market: Dan's total compensation ($USD32.07M) is above average for companies of similar size in the US market ($USD13.44M).

Compensation vs Earnings: Dan's compensation has increased by more than 20% whilst company earnings have fallen more than 20% in the past year.

Leadership Team

Experienced Management: PYPL's management team is considered experienced (2.3 years average tenure).

Board Members

Experienced Board: PYPL's board of directors are considered experienced (6.9 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: PYPL insiders have bought more shares than they have sold in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/06/29 00:00
End of Day Share Price	2022/06/29 00:00
Earnings	2022/03/31
Annual Earnings	2021/12/31