“I think the environment that we are in, as difficult as it is, is an opportunity for us in many ways. I’d rather the economy be booming along but if you are going into a difficult time, this is the time where market leaders have the opportunity to improve their position coming out of a difficult economic cycle. You’ve got a rising interest rate environment. That’s clearly a tailwind for us [given that with higher interest rates we earn higher interest on customer balances held on our platform].” - With these words, Dan Schulman, CEO of PayPal (Paypal), opened the recent conference. What could this mean for the future of this company and is it really an opportunity?
A few words about PayPal
PayPal is a financial services company best known for one of the world's largest and most popular online payment platforms. PayPal allows users to make payments for purchases in online shops, transfers of money between people and other financial operations. It also offers: credit cards, bank accounts and other financial tools. The company operates in more than 100 countries and serves more than 400 million active users worldwide.
The company's business model is mainly based on fees for using the platform to make online payments. Users who meet conditions regarding the number of transactions or the level of turnover are exempt from these. PayPal also earns fees for the use of the credit or debit cards it makes available to its users. The company also gets fees from merchants for allowing them to accept payments through its platform. Overall, PayPal's business model is based on fees for using its services and exchange rate differences.
PayPal financial results
The company has not had a quarter with a decline in revenue since 2015, while the average annual growth was 16% year-on-year (21% year-on-year. after excluding E-Bay). We learned from the Q3 report that this growth has now dropped to 10% y/y. Similarly, the company's situation is similar for operative profit, which increased by 7.19% y/y. The net profit margin for the company currently stands at 8.5% and has seen a noticeable decline since the beginning of 2021, when it stood at 22.8%. However, it seems that the company is nevertheless leveraging its advantage over its competitors, where the average net profit margin is 7.45%.
However, given the nature of this type of business, let's look at operating cash flow and the amount of funds held. Operating income appears to be strongly seasonal, which may be linked to the customer buying cycle. The company's cash inflow values are highest in recent quarters. Currently, cash flow growth from its core business has increased by 28% year-on-year. The company currently holds more than USD 10 billion in cash and cash equivalents, representing 14% of its market value.
What does Wall Street think of PayPal's share price?
According to the Market Screener portal, the company has 47 recommendations, and among these, the predominant one reads: "Buy". The average target price is set at USD 105.62, 53% below the last closing price. The highest target price is at USD 160 and the lowest is USD 75, which is abowe the last closing price.
Source: Conotoxia MT5, PayPal, Weekly
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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