Company Reports

Overall, we think PayPal recorded a strong start to the year. In our view, the key positive was the modest acceleration in growth for PayPal-branded volume. We believe the company’s narrow moat is driven by a scale-based cost advantage. As such, maintaining share in its most profitable business is important to maintain the company’s moat over time. We’re encouraged to see PayPal outperforming expectations now that new CEO Alex Chriss is in place and take this as a positive sign going forward, although the company still has work to do to get fully back on track. We will maintain our $104 fair value estimate and see the shares are undervalued.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and new competition arises. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation, and we see this evolution as the right move.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and new competition arises. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control, and we see this evolution as the right move.

PayPal's fourth-quarter results were solid overall, but the outlook management provided for 2024 suggests the road toward improving growth and profitability will be longer than expected. We expect to reduce our $135 per share fair value estimate by about 20% as we moderate our growth and margin assumptions. That said, we still believe the company's narrow moat and favorable secular tailwinds create an attractive long-term picture, and see the shares as undervalued.

PayPal released a short video on Jan. 25 in which CEO Alex Chriss outlined the new product innovations the company intends to launch in 2024. While we don’t see anything game-changing, we do think management is focused in the right direction. In our view, the ease of checkout and higher conversion rates have always been key draws for the company, and we appreciate the efforts the company will make to further build on these strengths. We also think attempts to utilize the company’s data assets to serve targeted offers to consumers make strategic sense, but we’re a bit skeptical that these will meaningfully improve volumes.

We think PayPal's third-quarter results were mixed, and management's guidance suggests that the fourth quarter will be a little softer than expected. However, we are encouraged by comments from new CEO Alex Chriss and see his thoughts on PayPal's long-term prospects are roughly in line with our own. We will maintain our $135 per share fair value estimate for the narrow-moat company and view the shares as deeply undervalued.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic further accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and the macroeconomic situation worsens. Management is attempting to combat the pressure on top-line growth with a greater focus on margin improvement, and we see this evolution as the right move.

PayPal announced that Alex Chriss will take over as CEO on Sept. 27. He will also join the board. Chriss seems like a solid choice; he currently manages Intuit’s small-business and self-employed group, which accounts for most of that company's revenue. We don’t expect dramatic changes after Chriss takes over. We believe it would be very difficult to veer from the company’s current focus on improving margins and returning capital to shareholders, given the involvement of activist investor Elliott Management. We will maintain our $135 fair value estimate for narrow-moat PayPal.

PayPal's growth slowed a bit in the second quarter from the strong start it saw during the first quarter, and management's guidance suggests growth in the third quarter will roughly mirror results from the second quarter. While we think the market might focus on the deceleration, PayPal is tracking in line with our expectations for the full year, and we are encouraged by management's comments suggesting that the company is approaching a positive inflection point. We will maintain our $135 per share fair value estimate for the narrow-moat company and see the shares as materially undervalued.

Over the past few years, the market has vacillated between hope and despair when it comes to PayPal. The company's stock roughly tripled in the early stages of the pandemic, but the shares have since fallen about 75% from their peak to a level materially below their prepandemic price. With market confidence in the stock at a low ebb, we see a potentially good long-term opportunity. Our fair value estimate for the narrow-moat company is $135 per share.

PayPal announced that it has reached a multiyear agreement to sell substantially all its existing and future European buy now, pay later, or BNPL, loans to KKR. PayPal introduced its BNPL offering in 2020 and has had significant growth since, processing over $20 billion in BNPL volume in 2022. Strategically, we like this move, as we view offloading credit risk as a positive for payment processors. Additionally, given the still nascent nature of BNPL offerings and the uncertainty around future performance of BNPL offerings, we think this deal removes an element of risk for PayPal. The deal is expected to close in the back half of the year and to generate $1.8 billion in proceeds. As a result, management increased its expectations for stock repurchases this year to $5 billion. Given that we view shares as materially undervalued, we like the decision to increase capital return this year. We will maintain our $135 fair value estimate and narrow moat rating.

PayPal had a strong start to the year, with the company outperforming expectations for the quarter. While we are pleased with the quarter, we see no major surprises and will maintain our $135 fair value estimate. We continue to see shares of the narrow-moat company as undervalued.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been turbocharged by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic further accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and the macroeconomic situation worsens. Management is attempting to combat the pressure on top-line growth with a greater focus on margin improvement, and we see this evolution as the right move.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. In recent years, PayPal’s growth had been turbocharged by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic further accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and the macroeconomic situation worsens. Management is attempting to combat the pressure on top-line growth with a greater focus on margin improvement.

We see PayPal’s fourth-quarter results as a mixed bag. On the negative side, top-line growth remains under pressure amid a more difficult industry environment, and this headwind will likely remain as the company moves into 2023. On the plus side, the company’s cost-control actions are having the intended effect, and we think the outlook on margins has improved. Overall, we are comfortable maintaining our $135 fair value estimate for the narrow-moat company, and see the shares as materially undervalued from a long-term perspective.

It has been reported by MarketWatch and others that PayPal will lay off 7% of its workforce as the company continues to focus on reducing costs amid a relatively soft growth environment. Improving margins has increasingly been a focus for management over the past year, possibly in part due to pressure from activist Elliott Investment Management, and this looks like another step in that direction. We continue to believe the company has potential to meaningfully improve margins over time, as we believe a number of factors that have negatively affected margins historically (the move away from eBay, the buildout of new platforms like Venmo, and inefficient spending in the beginning of the pandemic) will not be significant issues going forward, and the business is naturally scalable, in our view. We will maintain our $135 fair value estimate and narrow moat rating.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. In recent years, PayPal’s growth has been turbocharged by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus further accelerated the shift toward. However, the company might continue to see some headwinds in the near term as the positives from the pandemic reverse and the macroeconomic situation worsens.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. In recent years, PayPal’s growth has remained turbocharged by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus further accelerated the shift toward. However, the company might see some headwinds this year as the positives from the pandemic reverse and the macroeconomic situation worsens.

PayPal delivered a solid third quarter, in our view, with growth largely holding at its recent trajectory and the company making some strides in its efforts to restore margin levels. Overall, we didn't see anything in the quarter that would materially alter our view. We will maintain our $135 fair value estimate and narrow moat rating.

While narrow-moat PayPal continues to struggle with some headwinds, in our view, its second-quarter results suggest the company is holding up relatively well. Additionally, the company announced some targets in terms of capital return and cost reductions that we view favorably. We continue to believe the shares are materially undervalued and will maintain our $135 fair value estimate.