PayPal (PYPL) Investment Memo
Meera Equities 09.15.2020
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Investment Thesis
PayPal is a global leader in the digital payment industry. The company is primed to grow transaction volume in the P2P, B2B, and C2B spaces through acquisitions, network expansion, and increased flexibility across platforms and vehicles.
Company Description
PayPal provides electronic payment solutions to merchants and consumers, with a focus on online transactions. Its solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The firm manages a two-sided proprietary global technology platform that links customers, which consist of both merchants and consumers, to facilitate the processing of payment transactions.
Qualitative
Overview
Sector: Financial Services
Industry: Internet Security & Transaction Services
Competitors: OCFT, PAGS, V
Strategy: Develop a network of merchants & consumers
Business Model: Generate revenue by charging fees and providing transaction processing
Facilitate the P2P exchange of funds with their PayPal, Venmo, and Xoom products.
Offer merchants end-to-end payment solutions that provide authorization, settlements, and instant access to funds.
Value-add services including; partnerships, PayPal merchant and consumer credit products, subscription fees, gateway services, and other services.
Revenues are dependent on the volume of activity processed through PayPal’s payment platforms.
Market: Merchants & Consumers
The global digital payment market size was valued at $43.5B with a CAGR of 17.6%.
364M active accounts (including more than 26M merchant accounts) – 21% increase YoY
Daily active accounts using PayPal core experiences was ~37% higher YoY in Q2
Moat: Two-sided Platform
Having information on both sides of the transaction gives PayPal a sizeable edge in combating fraud.
Payment infrastructure network effects – PayPal transacting convert at a rate of 90% compared to the industry average of 50%.
X-Factor: Acquisitions
PayPal has made substantial acquisitions over the last few years and management has communicated that it will continue to do so.
Acquisitions can help PayPal gain market share/accounts, integrate father into the consumer life cycle, and increase volume.
Recent acquisitions include; Honey, GoPay, Simility, Hyperwallet, iZettle, & Jetlore.
Cash Cow: Transaction Revenue
$16.1B in revenue, 90.5% of total revenues.
PayPal is benefiting from a material shift to online payments, the evolution of online commerce, and the “war on cash”.
PayPal is ever working to expand its services and products suite to be the most convenient option at the point-of-sale.
Growth Opportunities:
Mobile Commerce – Mobile commerce sales are projected to reach $2.91T in 2020 and have grown 33.8% YoY since 2016.
Expanding value proposition – Seek to grow and expand online & in-store commerce by adding flexibility to manage and move money.
Strategic Partnerships – provide better experiences and choices to reinforce PayPal’s role in the payment ecosystem.
Quantitative
Risks
Increasing competition and challengers to PayPal’s network effects.
Various governments have opted to develop payment infrastructure internally and have blocked PayPal from operating or moving into the market.
Acquisitions can destroy value if the company overpays or fails to properly integrate/maximize.
PayPal provides global payment infrastructure and is subject to global exchange rates and regulations.
Learn Something
Company Materials: 10-K | 2Q Meeting Presentation | Investor Relations
Pymnts.com: Trend Talk - The Year Of Payments Infrastructure
Visual Capitalist: Visualizing the Rise of Digital Payment Adoption
Return on Invested Capital (ROIC): ROIC is the amount of return a company makes above the average cost it pays for its debt and equity capital.
