No. of Recommendations: 23
PayPal changed its management two years ago and not just in a subtle way but a complete overhaul. Having listened to their 2025 investor's data (
https://www.youtube.com/watch?v=iIo3GVe9iME&t=8737...) they are incredibly passionate and focussed, and looking at the history of the individuals they are definitely have a credible and successful past.
Moreover they are starting to see the results of the adjusted strategy. They are intensely focussed on the long term and have a good mix of chasing innovation and focusing on EPS rather than just revenue growth.
The sentiment on PayPal by the market is super low. A lot of this is likely trivial:
(1) PayPal went through an exuberant pricing phrase after brief earnings expansion owing to Covid and a surge of online shopping, and;
(2) PayPal investors fled out of the stock, bidding the quote down after it didn't continue to grow as it was during that temporary surge. If you click the link below showing the EPS, the trajectory shows the post-Covid earnings forwarded into the mid-Covid earnings and the total aggregate over the 5 years period unchanged.
However -- if you look at their EPS trajectory from before Covid until today, it does not look like a suffering company at all,
even with the earlier weaker management. The earlier management weren't the best at capital allocation, and were more sales focussed than EPS focussed. Yet still, EPS grew from 218 to 466 over the last 5 years (from just before Covid), which smooths out the Covid surge effect, and that is an EPS growth (CAGR) of 16%.
https://www.macrotrends.net/stocks/charts/PYPL/pay...PayPal is often very understandably viewed as not having an economic moat, because Apple Pay, and Google Wallet will take their market. What chance does Apple have against those giants? However the real world doesn't reflect such an intuition - PayPal's market position has grown, rather than shrunk whilst, since Apple and Google (and Stripe, Skrill, and Zelle, etc) entered the market.
Year PayPal TPV Worldwide TPV PayPal Share of Global E-commerce.
2023 $1,529 $5,780 26.45%
2022 $1,363 $5,310 25.67%
2021 $1,250 $4,990 25.05%
2020 $936 $4,250 22.02%
2019 $712 $3,351 21.25%
2018 $578 $2,982 19.38%
2017 $451 $2,382 18.93%
2016 $355 $1,850 19.19%
2015 $282 $1,548 18.22%
2014 $235 $1,340. 17.54%
(TPV = total payment volume excluding China, figures in billions of USD)
PayPal's revenue comes from making a small transaction fee on merchant (eg Amazon, Uber, etc) purchases transacted via PayPal and Venmo (Venmo is US only but has started to be used as a verb there). Apple Pay and Google Wallet/Pay were launched in 2011, PayPal's transaction volume went from $143 million to $1.7 billion today, a 12x increase (19% CAGR). More interestingly even their market-share of all global e-commerce transactions increased over those years as the above chart shows.
I have been debating with myself about how realistic it is for PayPal to start to enter the higher margin business of making use of its vast transaction data it has over customers - it knows the size of most shoes you order, not just what you theoretically might be inclined to buy (as Google knows) but what you actually bought. Amazon has this data also, but only for their own site - whilst PayPal has the data for the range of shopping over different merchants, for those customers that like to not enter credit cards and instead checkout with PayPal.
My first conclusion was that it is really a problem for PayPal to allow merchants to access this data, even in a very limited a semi-private way, because of the simple reason that the customer needs to be logged into PayPal whilst shopping with the merchant (Amazon, etc). Other than the brief period when logging into PayPal to finalize the payment, when can the merchant take advantage of PayPal's transaction data related to you? However, my view on this changed - provided you made just one transaction with the merchant using PayPal, then the merchant can in theory know your PayPal ID, so the next time you log into the merchant's website/app, they can make use of PayPal's APIs to access some
limited information about you, that PayPal is prepared to share, to help close sales. This could be, for example, showing the correct shoe size and style, or something more indirect such as focus on pushing winter clothing if you had recently made a trip to a cold part of the world. PayPal are presently working on such APIs to tap into their fast financial transaction data.
This probably isn't so interesting for Amazon as they already have far better search and purchase data than what PayPal can provide, at least for most customers given they are repeat customers.. but it could be useful for mid-level merchants prepared to do a little work, but not knowing much at all about you.
I have not wanted to factor the potential for merchants to make use of PayPal's transaction data, in such ways, in forecasting their EPS, as it still seems too speculative and uncertain -- but PayPal
are working hard at it right now, and it is something that is interesting to ponder. PayPal's customer data is still tiny in comparison to what Google and Meta have and also largely
not making use of yet. PayPal is storing actual transactions and product details across all merchants (for a given customer) but only for those that use PayPal, whilst Meta and Google are storing what you are doing - almost covering "how your mind works" and the latter having larger screen "real estate" also.
Some analysts have speculated that PayPal could include ads in receipts (I'm on the fence with that one) but their greater potential value for using their data is allowing the merchant to present products/services more efficiently, rather than selling ads, as far as I can forecast (and with little confidence).
PayPal, though, doesn't
need to expand their sales to make use of customer data, for the investment to be good. They are trading at a forward PE of 13, buying stock back at 6% of market cap annually, on a trajectory of rising margins and continued revenue growth around 7% on par with global commerce growth, EPS growth likely at around 12% per year for the next decade, higher if the stock continues to be quoted low thus buybacks more effective). They are so aggressive with partnering with merchants and making it easier for them to integrate PayPal. Merchants like PayPal as they literally lose sales by not including them.
It could be one of those cases where observation of the stock price decline 3 years sago drives poor sentiment, which catalyses further poor sentiment as the stock trades sideways whilst the underlying business continues to grow. This happened with Alibaba a year ago, and Google six months ago, but the "light price" caught up with the more realistic "heavier weight". PayPal might be in for a similar price catch up over the next couple of years.
Don't look for catalysts though - I find it better to purchase when the mood amongst investors is of a "I'm giving up" nature.
- Manlobbi
