Skip to Content
Stock Analyst Update

PayPal Continues to See Strong Growth

The company is sustaining its strong growth trajectory, but we think the current market price is overly rich.

Mentioned:

Overall, we think  PayPal’s (PYPL) second-quarter results show the company sustaining its strong growth trajectory. We will maintain our narrow moat rating and $68 fair value estimate. While we like the company’s long-term prospects, we continue to believe the current market price is overly rich.

Total payment volume was up 29% year over year, marking a slight deceleration from recent quarters. However, stripping out currency effects, growth on this front was in line with recent results. PayPal continues to see solid increases in active accounts and payments per account, which were up 15% and 9% year over year, respectively. We think the company’s ability to expand on both fronts helps to solidify its long-term prospects.

Transaction margin for the quarter was 56.0%, a slight decline sequentially but in line with results over the past year. Operating margins improved to 14.8% from 13.7% last year. We think the company’s growth and the scalability of the business model will allow for solid margin expansion over time.

During the quarter, the company bought back $500 million in shares; it has repurchased $2.3 billion so far this year. Given that we think the shares are overvalued, we don’t see the pickup in share repurchases as value-creative, but in our view, the aggression on this front demonstrates that PayPal is operating from a position of strength, especially as it announced $2.7 billion in acquisitions during the quarter. PayPal’s strong growth and profitability and its capital-light business model should add up to significant flexibility in terms of capital allocation in the years to come.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Brett Horn does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.