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PAYPAL STOCK ANALYSIS (PYPL): A Value Trap or a Deep Value Stock? - YouTube
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hi everyone this victor here as you may
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already know paypal stock dropped as
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much as 24 right after its queue for
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earnings release there are many reasons
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for this large job for example paypal
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had a huge active usage growth miss that
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did not meet any estimates paypal's
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management gave very weak guidance for
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the next quarter and weak guidance for
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the entire 2022 payback's management
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subtly changes strategies from investing
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more in incentives that will attract
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more new users to investing more in
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campaigns that will increase existing
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users engagement also the u.s inflation
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rate is at a 40-year high u.s fed is
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expected to increase its interest rate
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at least three times in 2022 to fight
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the high inflation rate in the u.s all
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these factors have caused paper stock to
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drop as much as 63 from the most recent
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peak you may wonder is paypal stock a
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value trap or is paypal a deep value
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stock that will eventually recover i
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will answer these two questions by
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covering these topics in this video
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first the four biggest headwinds paypal
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is facing right now i will talk about
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each headwind in detail second is paypal
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stock a while you trap third paypal
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stock valuation and fourth will i buy
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more paypal stock if you like this video
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make sure to hit the like button
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subscribe and turn on the notification
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button i will continue to make many
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a great investor also if you like this
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and become a premium member our goal is
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grow their stock portfolios to over
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seven figures over time with your
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independent hire other outstanding
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analysts to cover different stocks and
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create many excellent stock analysis and
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investing videos every week that will
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help you become a great investor the
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link is in the video description take a
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look let's start the biggest headwind is
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this payback's active user growth and
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revenue growth have slowed down a lot in
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recent quarters paypal stock dropped 24
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right after it's queue for earnings
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release because paypal's active user
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growth did not meet anything's
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expectations more importantly payback's
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management gave way weak user growth
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guidance and revenue guidance for the
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next quarter and for the entire year
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2022 for example in the most recent q4
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you can see paper only added 9.8 million
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net new active accounts including 3.2
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million from the acquisition of paidi in
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comparison people added 16 million net
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new active accounts in the same quarter
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of last year paypal currently has 426
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million active accounts at the time of
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making this video if you look at this
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here you can see paypal's net new active
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accounts growth have slowed down a lot
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in the most recent quarters payback's
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management gave way weak guidance for
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the next quarter and for the full year
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of 2022. for example management expects
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that the company will add 15 to 20
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million that's new active accounts in
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2022 in comparison paypal added 48.9
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million that's new active accounts in
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2021. management expects that payback's
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four-year value will grow between 15 to
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17 in 2022 including the impact from
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ebay again this is lower than ns
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expectations for example analysts had
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expected year-over-year revenue growth
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for 2022 to be 17.9
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total payment volume tpv is another
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important metric that drives paypal's
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revenue growth if you look at this here
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you can see paypal's total payment
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volume has slowed down a lot in the
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recent quarters paypal's quarterly
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revenue growth has also slowed down a
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lot in recent quarters there are several
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reasons for this slowing growth the
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first reason is that paypal's user
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growth total payment volume growth and
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rarely growth has benefited a lot from
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the pattern in 2020 and throughout the
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first half of 2021 paypal added 120
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million new customers during the
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pandemic which is much more than before
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this is what we call the pull forward
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effect customers use paypal to shop
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online much more than before since they
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could not go to stores to shop now
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customers can shop in stores again this
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is why paypal's total payment volume and
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remnant growth have slowed down a lot in
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recent quarters the second reason is
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that paypal benefited from government
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stimulus and ebay's revenue contribution
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in the first half of 2021 but now
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there's no more government stimulus and
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ebay's revenue growth contribution is
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much smaller than before this is why
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papers revenue growth has slowed down a
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lot in recent quarters the third reason
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is this management believes that many
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external factors such as supply chain
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issues the high inflation rate in the
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u.s covert variance and the elimination
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of u.s stimulus have impacted payback's
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active users growth and revenue growth
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management said this with all that said
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2031 was also a difficult year it was a
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particularly hard year to forecast
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exogenous factors also de-impact our
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results supply chain issues
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dispersionally impacted our cross-border
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volumes and our small business merchants
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inflationary pressures impacted spending
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within certain segments of our user base
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rising threats from coveted variants cut
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travel and even bookings and the
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elimination of government stimulus had
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that impact as well e-commerce growth
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rates during the holiday season were
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lower than industry expectations despite
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a strong two-year growth rate of almost
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50 percent the impact of omicron and the
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effect of inflationary prices combined
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with lack of stimulus is having an
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impact on spending and by extension our
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business this impact is most pronounced
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on our lower income cohorts and has
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continued to the first quarter the
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persistence of inflationary effects on
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personal consumption labor shortage
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supply chain issues and weaker consumer
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sentiment have leads to adopt a more
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cautious outlook here's the interesting
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thing part paypal's two biggest
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competitors visa and mastercard did very
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well during the same quarter ended on
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december 31 2021. for example lisa's
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family grew 24 year-over-year and
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mastercards apparently grew 27
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year-over-year in comparison paypal's
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rarely grew 13 year-over-year during the
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same period these shows visa and
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mastercard's businesses are much more
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resilient and have much larger equipment
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modes than paypal the second biggest
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headwind is this payback's management
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suddenly abandoned its goal to achieve
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750 million active users by 2025 many
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investors are not happy about this
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sudden change also management has
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changed its growth strategy to focus
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more on user engagement and less on new
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user acquisition this means paypal will
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invest much more on campaigns that will
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encourage existing users to use more
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paypal services because the return on
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investment roi is much higher on
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existing users and invest less on
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incentive campaigns that would increase
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user growth because the return on
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investment roi is much lower on new
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users management said this in the fourth
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quarter in connection with the increased
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use of incentive campaigns throughout
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2021 we identified 4.5 million accounts
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that we believe were illegitimately
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equated this number is immaterial to our
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overall base of 426 million customer
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accounts but it affected our ability to
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achieve our guidance in the quarter
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we're evolving our customer acquisition
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and engagement strategy and we now
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expect to add 15 million to 20 million
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net new customer accounts this year in
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addition we no longer believe that the
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750 million medium term account
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expiration we said last year is
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appropriate in assessing our marketing
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effectiveness our engagement initiatives
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were considerably more successful than
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the incentive campaigns we successfully
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moved customers of the engagement
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continent into higher levels of
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engagement throughout the year these
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strategies had strong returns and
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overtime will be important contributors
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to achieving our long-term value
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producer objectives moving forward we
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will continue to grow our users but our
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focus will be on sustainable growth and
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driving engagement to be very clear this
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is a choice on our part we could
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increase our spend and accelerate our
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net new active trajectory however we
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believe there are better ways to achieve
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our financial results we strongly
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believe that we are making the right
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decisions in redirecting our spent our
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highway customer acquisition and
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engagement channels that said over the
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next 12 months as these less engaged
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customers naturally roth it will
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maturely reduce our quality net ads
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paybox management admitted that they
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made a mistake of focusing too much on
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incentive campaigns in order to attract
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new users last year the problem was that
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these new users only joined paypal
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because of the incentive campaigns these
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new users tend to have high turn rates
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and low returns on investment many of
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them created fake accounts to take
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advantage of paypal's incentives this is
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why management reported that paper had
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4.5 million legitimate accounts in the
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last quarter management decided to focus
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on campaigns that would drive more user
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engagement and increase average revenue
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per user because the return on
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investment is much higher on existing
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users in my opinion i believe this is
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the right strategy going forward because
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paypal already has a very large user
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base 426 million active accounts at the
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time of making this video the third
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biggest headwind is this payback's total
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payment volume and revenue growth were
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greatly impacted by ebay in the past
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quarters because ebay had been
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transitioning from paypal to its own
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managed payments platform to process
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transactions management said this 2022
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is going to be a year of transformation
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and investment as we transition from
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outside schools driven by lockdown
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stream the pandemic and finalize the
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lapping of ebay's managed payments
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transition ebates transition will put an
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incremental 600 million of pressure on
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our top line approximately 400 million
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in q1 and 200 million q2 in the second
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half of the year i look forward to being
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able to stop adjusting for ebay and
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letting the strength of our core results
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be for themselves our growth excluding
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ebay has consistently been above 20 and
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a year over two-year growth rates have
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been remarkably stable again
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demonstrating the underlying strength of
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our platform here's the important part
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you want to know explains paypal's
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revenue growth going forward starting in
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2022 according to management ebay has
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already transitioned to its own managed
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payments in 2021 ebay should no longer
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have a large impact on payback's revenue
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growth going forward starting in the
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second half of 2022. for example if you
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look at the most recent q4 quarter here
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you can see ebay contributed 3 of
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paypal's total payment volume in q4 ebay
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also contributed three percent of
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paypal's total value in q4 paypal's
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total value grew 13 year-over-year in q4
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but if we exclude ebay's revenue paypal
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surrounding grew 22 year-over-year if
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paypal's management is correct payback's
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revenue growth should return to normal
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at around 20 year-over-year growth
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excluding ebay's impact because ebay's
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payment voice will be fully transitioned
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out of paper by then of 2022. management
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also gave these guidance for 2092.
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randomly expected to go 15 to 17 on a
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spot and phone exchange basis excluding
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ebay rarely expected to gross 19 to 21
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the fourth biggest headwind is obviously
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increasing competition in my opinion i
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believe paypal's two biggest competitors
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are visa and mastercard in payment
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checkouts for example if you shop online
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a lot you will notice that the most
[654]
popular payment checkout options are
[656]
visa mastercard paypal and american
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express typically when we shop things
[661]
online most people will choose to use
[663]
either visa mastercard paypal american
[666]
express or discover in the us visa and
[668]
mastercard are the two biggest car
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payment brands they are the two most
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popular payment card options for most
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customers this is why their businesses
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did much better than paypal in the most
[677]
recent quarter ended on december 31
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2021. paypal is very popular in online
[682]
payments but it's not as popular as visa
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and mastercard in offline payments for
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example most people will use their visa
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or moscow payment cards to pay for
[690]
things in offline retail stores instead
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of using paypal i believe this is one of
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the biggest reasons visa and mastercard
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reported much better earnings than paper
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in the most recent quarter ended on
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december 31 2021 payback also completes
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with other digital wallets including
[704]
apple pay google pay shortpay and cash
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app as of now paypal is still the most
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popular digital world compared with
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other competitors going forward there
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will be a lot more competition in
[715]
digital wallets because many companies
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such as squares cash app have introduced
[719]
payment solutions money transfer
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services crypto trading and investing
[723]
that compete with paypal super app so is
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paypal stock while you track personally
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i believe paypal's headwinds i mentioned
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earlier are only temporary i would not
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consider paypal wealthtrack because
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paypal surrendered growth should return
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to normal gain once ebay's payment
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volume is fully transitioned out of
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paypal by the second half of 2022.
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management expects that paypass random
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growth excluding ebay will be between 19
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and 21 year-over-year in 2022 also
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paypal's new strategy to focus on
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campaigns that will increase user
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engagement should be much better and
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more profitable than incentive campaigns
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that will drive new user growth the
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downside of payback's new strategy is
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that payback's user growth will likely
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slow down going forward for example
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management expressed that people have 15
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to 20 million net new active accounts in
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2022 in comparison paypal added 48.9
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million net new active accounts in 2021
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i would consider paypal a wealth trap if
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the company has declining active users
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and declining revenue every quarter to
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be fair we should not expect paypal to
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have the same high user growth and high
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revenue growth rate as in 2020 at the
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time of making this video paypal has 426
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million total active accounts including
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34 million merchants in my opinion i
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believe paper has a lot of leverage to
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invest in marketing campaigns that will
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increase existing users users or paypal
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services we will know whether this new
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strategy will work by then of 2022
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another thing i should mention is that
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amazon customers in the us will be able
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to check out using rambo starting in
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2022. paypal owns vemmo this new
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partnership with amazon should increase
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paypal's total payment volume going
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forward but of course this is too early
[817]
to tell now as of now i believe paypal's
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super app is the most important product
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that should drive paypal's long-term
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growth especially user engagement and
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the new active accounts growth paypal is
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the most popular platform for sending
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money online receiving money from other
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people and paying things online because
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of how easy it is to use paypal and
[836]
because paypal is accepted in more than
[838]
200 countries around the world other
[840]
than sending money online and paying
[842]
things online paypal is adding more
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services to its server app to drive user
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engagement and user growth for example
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you can use paypal's buy now pay later
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surface to split your purchase into four
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interest-free payments you can buy sell
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hold cryptocurrencies including bitcoin
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bitcoin cash ethereum and nikon you can
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buy things and check out with cryptos in
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your paypal account you can deposit
[864]
cheques set up direct deposits and pay
[866]
your bills using paypal management
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settings and a super app is showing
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extraordinarily promising early results
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now we only wrote that out fully in the
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middle of october across all of ios and
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android so we're three or four months
[877]
into it but what are we seeing we're
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seeing double the average revenue per
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active account when somebody uses our
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app versus just checkout when somebody
[886]
uses the app the propensity to churn is
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25 less in the near future we have
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talked about adding savings as well as
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adding investing to our platform and i
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think those fit very closely with our
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core business and how people think about
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us being a digital wallet others are
[900]
doing this and it's certainly a path
[902]
that we want to go down so we'll
[904]
continue each year to add additional
[906]
products and services that will
[908]
complement what we offer today let's
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talk about paypal stock evaluation i
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always use this intrinsic wire
[912]
calculator here to estimate a company's
[914]
fail interest value if you want this
[916]
interesting raw calculator you can
[917]
download it in my patreon blog in the
[919]
video description here are the key
[921]
assumptions first i define payback's
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intrinsic value as its future cash flows
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discounted to the present day the
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discount rate is 10
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this is slightly higher than the 8.5
[930]
cost of equity calculated by finbox.com
[933]
if you want to be more conservative you
[934]
can always use a higher discount right
[936]
here paypal's most recent 12 months of
[938]
free cash flow is 5.43 billion based on
[941]
the major headwinds and the long-term
[942]
prospects i talked about earlier i
[944]
believe papers free cash flow will grow
[945]
and compile and will go through a char
[948]
between 10 and 20 over the next five
[950]
years this cash flow chr is very
[952]
subjective you can always use a low cash
[954]
flow chi here if you want to be more
[956]
conservative to calculate the terminal
[958]
value at the lva5 we're using both the
[960]
perpetual growth model and the except
[961]
multiple here then we take the average
[963]
of both models to calculate the terminal
[965]
value let's go over these three case
[967]
scenarios the worst case the normal
[969]
gates and the best case scenarios under
[971]
the worst case scenario we're using a
[972]
compound and you'll go through a cage of
[974]
10 if we forecast payback's free cash
[976]
flow to the next five years and discount
[978]
the free cash flow to the present day
[980]
paypal's in while should be 136 billion
[983]
for the entire company or 116 dollars
[985]
per share i'm giving this scenario a 25
[988]
probability here under the normal case
[990]
scenario we're using a compound and
[992]
you'll go through a chu of 15
[994]
if we forecast payback's free cash flow
[996]
to the next five years and discount the
[998]
free cash flow to the present day
[999]
paypal's intrinsic value spread around
[1001]
167 billion for the entire company or
[1004]
143 dollars per share i'm giving this a
[1006]
narrow of 50 probability here under the
[1009]
best case scenario where using a
[1010]
compound and you'll go through a ch of
[1013]
20
[1013]
if we focus payback's free cash flow to
[1015]
the next five years and discount the
[1017]
free cash flow to the present day paypal
[1019]
is in chainsaws around 203 billion for
[1022]
the entire company or 174 dollars per
[1024]
share i'm giving this an error 25
[1026]
probability here if you add all these
[1028]
numbers here paypal's fair interest rate
[1030]
should be around 144 per share at the
[1033]
time of making this video this means i
[1035]
believe paypal is under value at the top
[1037]
making this video in comparison
[1039]
morningstar gave a fair well change of
[1040]
151 dollars per share so would i buy
[1043]
paypal stock yes i would likely buy more
[1045]
paypal stock going 4 in the upcoming
[1047]
months because i believe the major
[1048]
headwinds i talked about earlier are
[1050]
only temporary i believe management's
[1052]
new strategy to focus on user engagement
[1054]
will help paypal return to higher
[1056]
revenue growth again in the second half
[1057]
of 2022 after ebay's payment volume
[1060]
fully transitions out of paypal
[1062]
realistically i do not expect paypal to
[1064]
have the same higher user growth and
[1065]
high value growth as before i've had
[1067]
paypal stock in my portfolio for several
[1069]
years already my plan is to continue
[1071]
investing in paypal for at least 10
[1073]
years as long as paypal continues to
[1075]
have outstanding products and services
[1077]
based on my statement i believe people's
[1078]
fair interest rate is 144 dollars per
[1081]
share i will update paypal's fee just
[1082]
while you estimate every quarter once it
[1084]
releases its earnings if you want the
[1086]
latest interest rate estimate for paypal
[1088]
you can download it in my patreon blog
[1090]
in the video description now all these
[1092]
estimates are only my opinions and my
[1094]
analysis based on my research they are
[1095]
not financial wise you will need to do
[1097]
your own research and do your extra due
[1099]
diligence first before investing in
[1101]
anything thank you for watching this
[1102]
video and supporting our channel this
[1104]
victory from the intelligent investor
[1105]
channel and i will see in the next video
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