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WebApr 21, · The thesis of this article is that PayPal (NASDAQ: PYPL) represents such a business at its current stage, i.e., a dominating scale leader that still enjoys perfect WebFeb 21, · The investment thesis The stock price of PayPal (NASDAQ: PYPL) has declined about 2/3 since its peaked last year at around $ Its shares price fell by WebFeb 5, · PayPal launched crypto trading in the U.S. at the start of the quarter, and CEO Dan Schulman noted crypto volume growth had “exceeded management’s WebFeb 5, · PayPal: New Features Keep Driving the Bull Thesis support@blogger.com (Ben Mahaney) February 5, , PM · 3 min read WebFeb 5, · Dan Schulman. PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides ... read more
A June report from the World Bank stated:. Advanced economies are projected to shrink 7 percent. That weakness will spill over to the outlook for emerging market and developing economies, who are forecast to contract by 2. This would represent the weakest showing by this group of economies in at least sixty years. COVID has so far been a net positive for PayPal. Back then, eBay had no revenue-growth from its main e-commerce platform. But the segment that consisted primarily of PayPal produced strong double-digit revenue growth in both years. Source: eBay annual report. We want to be clear: We like the deal and we think it will work out great. Now, instead of being a payment option consumers choose once they have already committed to a purchase, PayPal can engage with consumers much higher in the purchase funnel.
This might be one step higher, as would be the case with coupon search, but it could also be around discovery and calls-to-action, as might be the case with the app or notifications and price-tracking…. Moreover, the early signs of the Honey acquisition have been encouraging. For example:. But the deal is still a risk. We will have to face a situation of PayPal writing down the value of Honey if the integration of the two fails to live up to expectations. We think the transition from cash to cashless payments holds immense opportunities for companies. We also think a payment company with a wide network of consumers and merchants PayPal, for instance stands a good chance of being one of the eventual winners. Furthermore, PayPal has a robust balance sheet, a proven ability to generate strong free cash flow, high levels of recurring revenues, and an excellent management team whose interests are aligned with shareholders.
They include competition, regulation, recessions, and more. We initiated a 4. To us, PayPal is a company with 1 a huge addressable market, and 2 a high probability of being able to grow at a strong clip for many years in the future. By using this website, you agree that you are an Accredited Investor or Institutional Investor as defined by the Securities and Futures Act Cap. You also agree not to construe any of the information presented in this website as 1 an offer of any fund or security, 2 a solicitation of an offer of any fund or security, and 3 investment advice on any fund or security.
Compounder Fund: PayPal Investment Thesis. As the network becomes larger, the nodes begin to compete against each other for customers and the return diminishes. But certain networks, like the services PYPL provides, enjoy this magic trait — the network becomes more profitable as it becomes bigger. And payment networks e. And next, we will see that PYPL is a beneficiary of such network effects. ROCE stands for the return on capital employed. Note that ROCE considers the return of capital ACTUALLY employed, and therefore is different from the return on equity. A detailed analysis of the ROCE for PYPL has been published in my earlier article here. And I will just directly quote the results as shown in the next chart. Source: author and Seeking Alpha.
However, ROCE only tells us how profitable the business has been or is SO FAR. Detailed background information on MROCE can be found in my earlier article on Visa. And a brief summary is provided here to facilitate this discussion for readers who are new to this concept. What the MROCE concept captures is a basic law in economic activities: the law of diminishing returns. As illustrated in the next chart, a business will first invest its money at projects with the highest possible rate of return. Therefore, the first batch of available resources is invested at a high rate of return - the highest the business can possibly identify.
The second batch of money will have to be invested at a somewhat lower rate of return since the best ideas have been taken by the first batch of resources already, and so on. And finally, the end result is a declining MROCE curve as shown. Source: author. Warren Buffett commented on this concept on multiple occasions too. As an example, the following is a quote from his Berkshire Hathaway Shareholder Letter the emphasis is added by me :. Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. A really good business not only has to enjoy a healthy return on its capital already invested which is captured by ROCE but also has to keep finding equally good or better opportunities to make future incremental investments — which is captured in MROCE.
And you will see next that PYPL is showing no diminishing marginal return in its current stage. This chart shows the MROCE and ROCE for PYPL over recent years. The ROCE data are the same as those shown in the previous section. The only note that I will highlight is that during years when there were large fluctuations in either the incremental earnings or the incremental capital employed, a multi-year running average was taken to smooth the fluctuations. The results shown in the following chart show that at this stage, PYPL has been actually able to maintain an MROCE that is essentially the same as the average ROCE so far. And the small difference is most likely due to inevitable uncertainties in the financial data and rounding off errors.
So, this result suggests that PYPL has not reached the stage of diminishing return yet - gravity has not caught up yet. And if the current MROCE continues, PYPL will continue its high and consistent ROCE. Source: author and Seeking Alpha data. As a more visual way of showing valuation adjusted for quality, the next chart is my favorite chart. It compares the PE vs. ROCE for various Buffett-type businesses. Instead of looking at PE alone, it makes more sense to look at PE in the context of quality. The green line is what I call the Buffett value line. This article analyzes PYPL with a focus on its scalability and valuation and return potentials especially compared to Visa.
The main takeaways are:. Thanks for reading! Look forward to your comments and thoughts! LIXTE Biotechnology Holdings Inc NASDAQ: LIXT noted that a team of scientists reported that in three difficult-to-treat cancer types, LIXTE's lead compound, LB, combined with an inhibitor of the WEE1 kinase, causes unexpectedly effective cancer cell killing. Most surprisingly, when cancer cells acquire resistance to this combination therapy, they have highly reduced cancer-causing capacity in animal models. This observation indicates that LB combination therapy can force cells to give. Despite the Nasdaq rocketing The three worst Nasdaq performers in January were Enphase Energy NASDAQ: ENPH , Intuitive Surgical NASDAQ: ISRG , and Automatic Data Processing NASDAQ: ADP.
Enphase was the basement dweller among Nasdaq stocks, down A Roth k is a solid option for retirement savers, especially those who don't anticipate finding themselves in a lower tax bracket when they retire. It was the first Powerball jackpot win since Nov. markets close in 10 minutes. Dow 30 34, Nasdaq 12, Russell 1, Crude Oil Gold 1, Silver BTC-USD 23, CMC Crypto FTSE 7, Nikkei 27, Read full article. support smarteranalyst. com Ben Mahaney. February 5, , PM · 3 min read.
The major drivers for such decline were a combination of three factors in my view. As a result, PYPL's stock price was caught in a perfect storm. However, this perfect storm has created an entry opportunity for long-term investors who can look beyond the current turmoil. You will see in four charts how strong the business fundamentals remain. In particular:. When we think like a long-term business owner, not a stock trader, a key metric the most important metric in my opinion is the return on capital employed ROCE. Details of the analysis of ROCE has been elaborated on in my earlier articles , and here I will just provide a very brief recap for ease of reference:. Under this background, to estimate the ROCE of businesses like PYPL, I consider the following items of capital actually employed:.
Based on the above considerations, the ROCE of PYPL over the past decade is shown below. The next section puts things under perspective by comparing it with the ROCE of other businesses. Source: author and Seeking Alpha. To help put things under perspective, the next chart shows the ROCE of a few other stocks V , AAPL , GOOG , et al. The ROCE data are directly pulled from my previous analyses, and in case you want to see the details of how I got these numbers, you can look up my recent articles under these tickers. The purpose here is certainly not to compare oranges with apples. The purpose here is to put PYPL's ROCE into perspective.
As can be seen, despite the random nature of this collection of businesses, they are all good quality and mature businesses. And PYPL earns a very competitive ROCE even among this group of overachievers. Its ROCE is only obviously lower than APPL which is in its own category anyway and its competitor Visa and we will elaborate on the competition later. Finally, if you are familiar with the portfolio Warren Buffett built for BRK , you would recognize that many of the stocks are in this portfolio. So the stocks shown in this chart are not really a random collection of all. They are all considered excellent long-term compounders by Warren Buffett.
PYPL currently trades at about However, it is not that meaningful to comment on PE without considering the quality of the business and vice versa. Hence, I find it always more insightful to look at the following chart, comparing the PE vs ROCE of PYPL with the above stocks. Think of this chart as a chart for quality-adjusted-PE. So this chart combines both factors. Again, the data here are directly pulled from my previous analyses. As aforementioned, the stocks in this chart represent some of the large BRK holdings V, AAPL, AMZN , and ABBV plus GOOG. It's a line linking A the origin a business that has 0 ROCE should be worth 0x PE , and B Buffett's largest holding AAPL which happens to have the highest ROCE among this group of stocks.
So from a value investor point of view, it only makes sense to make investments along this line or below it. Because investment along this line or below represents a trade-off between quality and price that is equivalent or better than AAPL. It makes no sense to invest far above this line, as anything above this line represents an inferior trade-off between quality and price - we'd be better off just investing in AAPL or some combination of AAPL and ABBV. As you can see, PYPL is the only one that currently falls close to this line in this pack. All the other major names are above this line and some of them by a lot. Lastly, let's look at its capital allocation flexibility. PYPL is effective debt-free.
PYPL does not pay a dividend. So the capital allocation picture is really simple here: PYPL earns a load of cash organically from its operations but does not need to spend much. Buffett said multiple times that there are businesses that, at the end of the day, point to a bunch of depreciated properties and equipment and tell the investors, "these are our profits. From this above discussion, PYPL is the exact opposite of the businesses that he hates. The business has such financial flexibility. So it has the complete full spectrum of choices in terms of capital allocation - and all choices can be funded organically by its operating income. Here is where its high ROCE aforementioned adds to the potency. As aforementioned, in the long term, the growth rate is given by:.
Finally, the following chart shows the cash behind each share of the above businesses and the PE multiple adjusted for cash. Here the cash per share was taken as the portion of the book value that is in cash or cash equivalent. As can be seen, all the businesses have a positive cash position behind their shares except AAPL and ABBV. Whether holding a large amount of cash is good or bad is a different topic for another day. In my opinion, it may not be a good thing, but it cannot be a bad thing. It indicates strong cash generation capability and low requirements for cash. It also offers capital allocation flexibility. Adjusted for the cash position, PYPL's PE is only about Source: author and Seeking Alpha data.
In the short term, PYPL faces pressures both in terms of its revenues and earnings. And the integration will likely take some time for the synergies to pay off. In the long term, PYPL is in competition with other larger payment companies. At the same time, as aforementioned, the ROCE of Visa is also substantially higher than PYPL. PYPL's stock got caught up in a perfect storm recently. The focus of this article is to present an analysis of the business fundamentals for investors who see these issues as either irrelevant like the burst of the bubble and the overall market correction , or temporary and will pass like its loss of the eBay account and quarter-to-quarter fluctuations. For these investors, this article looks beyond the headline and focuses on the trendline of PYPL's perpetual compounding prospects.
The results show that PYPL represents one of the most attractive investments under the current market condition. In particular,. As you can tell, our core style is to provide actionable and unambiguous ideas from our independent research. If your share this investment style, check out Envision Early Retirement. It provides at least 2x in-depth articles per week on such ideas. We have vetted and perfected our methods with our own money and efforts for the past 15 years. For example, our aggressive growth portfolio has helped ourselves and many around us to consistently maximize return with minimal drawdowns. Department of Mechanical Engineering, with concentration in advanced and renewable energy solutions.
Since , have been actively analyzing stocks and the overall market, managing various portfolios and accounts and providing investment counseling to many relatives and friends. We monitor several asset classes for tactical opportunities. Examples include less-covered stocks ideas such as our past holdings like CRUS and FL , the credit and REIT market, short-term and long-term bond trade opportunities, and gold-silver trade opportunities. I also take a holistic view and watch out on aspects both dangers and opportunities often neglected — such as tax considerations always a large chunk of return , fitness with the rest of holdings no holding is good or bad until it is examined under the context of what we already hold , and allocation across asset classes.
Above all, like many SA readers and writers, I am a curious investor — I look forward to constantly learn, re-learn, and de-learn with this wonderful community. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Envision Research Marketplace. So a sizable correction was inevitable anyway. The loss of the eBay relationship, together with the decline of the net new active accounts together, put a damper on its growth. A broader market correction, especially the shift away from growth stocks to value stocks, has also transpired since the beginning of this year.
In particular: The bubble has burst by now and there is not too much valuation risk any more. And the burst of the bubble has no relevance to the business fundamentals. Similar, the overall market correction has no relevance to the business fundamentals either. market's sentiment is notoriously and constantly shifting. The concern of the growth prospects is overblown. Its underlying business remains strong with all the hallmarks of a perpetual compounder: its excellent return on capital and profitability, its enviable capital allocation flexibility, and the ample secular growth opportunities ahead.
Chart 1: Return on capital employed When we think like a long-term business owner, not a stock trader, a key metric the most important metric in my opinion is the return on capital employed ROCE. Details of the analysis of ROCE has been elaborated on in my earlier articles , and here I will just provide a very brief recap for ease of reference: ROCE is different from the more commonly quoted return on equity "ROE". ROCE is the profit earned on the capital ACTUALLY employed, and it would be the same as ROE if the book value equals the capital actually employed.
But more often than not, the book value is not the capital actually employed. That is why ROCE is more fundamentally important. A consistent and high ROCE also shows how effectively the reinvested income can be used to fuel further earning growth. And the combination of high ROCE and capital allocation flexibility is the key for a long-term compounder. Under this background, to estimate the ROCE of businesses like PYPL, I consider the following items of capital actually employed: Working capital, including payables, receivables, inventory. These are the capitals required for the daily operation of their businesses. Gross Property, Plant, and Equipment.
These are the capitals required to actually conduct business. Research and development expenses are also capitalized. Chart 2: PYPL's ROCE vs peers To help put things under perspective, the next chart shows the ROCE of a few other stocks V , AAPL , GOOG , et al.
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WebFeb 5, · Dan Schulman. PayPal Holdings, Inc. operates a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides WebFeb 5, · PayPal: New Features Keep Driving the Bull Thesis support@blogger.com (Ben Mahaney) February 5, , PM · 3 min read WebApr 21, · The thesis of this article is that PayPal (NASDAQ: PYPL) represents such a business at its current stage, i.e., a dominating scale leader that still enjoys perfect WebFeb 5, · PayPal launched crypto trading in the U.S. at the start of the quarter, and CEO Dan Schulman noted crypto volume growth had “exceeded management’s WebFeb 21, · The investment thesis The stock price of PayPal (NASDAQ: PYPL) has declined about 2/3 since its peaked last year at around $ Its shares price fell by ... read more
Furthermore, PayPal has a robust balance sheet, a proven ability to generate strong free cash flow, high levels of recurring revenues, and an excellent management team whose interests are aligned with shareholders. Featured Bedroom. Your email address will not be published. Department of Mechanical Engineering, with concentration in advanced and renewable energy solutions. ET on Tuesday, after a federal district court in Nevada issued what the company called a "favorable ruling" in an appeal against a Bureau of Land Management BLM ruling. According to Statista , PayPal ranked third among the most popular mobile payment methods accepted by online merchants worldwide, only behind credit and debit cards. Kettle and Fire Bone Broth.
Check out our marketplace service As you paypal thesis tell, paypal thesis, our core style is to provide actionable and unambiguous ideas from our independent research. From there, it operates as a subscription service. The focus of this article is to present an analysis of the business fundamentals for investors who see these issues as either irrelevant like the burst of the bubble and the overall market correctionpaypal thesis, or temporary and will pass like its loss of the eBay account and quarter-to-quarter fluctuations. We have vetted and perfected our methods with our own money and efforts for the past 15 years. This is a pattern type cookie set by Google Analytics, where the pattern element on paypal thesis name contains the unique identity number of the account or website it relates to.
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