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Dec 9, 2021
[2 min Read]
Call to Action: We see no significant risks to PYPL's position in the short term and view the 2022 setup favorably. Price target $250.
Thesis: PYPL's performance will continue into 2022; while facing covid-comps, the combination of organic growth and elimination of drags will bode well for sustained double-digit growth. PYPL's 2022 Venmo deal with Amazon will sustain growth in transaction volume while also boosting Venmo's own growth. Continued payments and eCommerce integration affirm confidence after 3Q comps and a softer 4Q guidance.
Expanded Payments: PYPL noted that Buy Now, Pay Later TPV run rate exceeds $8B annually, and new initiatives and expansions. BNPL is expanding to Spain and Italy, and consumer late fees will be eliminated since October 1st. PYPL continues to expand across payment verticals, with payment solutions with Walmart, Booking.com, AliExpress, etc. PYPL further noted that customers will be able to make purchases on AMZN and mobile shopping app via Venmo after 2022.
PayPal Wallet: PYPL highlighted the global rollout of the digital wallet, and noted early wins in user engagement, driving increased transactions. PYPL Cash Card enrollments increased 35%, first-time alternative-currency users have increased 15%, and first-time donations have increased 35%.
M&A: PYPL highlighted the tuck-in acquisition of Paidy, the leading two-sided payments platform and BNPL provider in Japan, which closed on Oct. 13th. This positions well for the 3rd largest eCommerce market's pivot towards cashless payments.
Guidance: PYPL's guidance baked-in headwinds from reopening and cited EBAY as a continued drag on performance. Management currently expects around 18% revenue growth for 2022, with a reacceleration of revenues in 2H22 following a flatter 1H. Overall, management expects above medium-term guidance.
Key Takeaways: PYPL's initiatives continue to boost organic growth in transaction volume and user engagement. With the expiration of the PYPL-eBay deal, performance drag will be reduced. However, in the short term, tough prior-year comps and project maturation both point toward a flatter 1H22. The long-term setup is more positive with secular growth in cashless payments.
Estimates and Valuation: My price target of $250 is using a forecasted 2026 Diluted Non-GAAP EPS, with a terminal EPS multiple of 26, a discount rate of 9%. This means the stock currently trades at 13.14x times Terminal EPS.
Downside Risks: increased credit losses from the BNPL segment, accelerated take-rate reductions, slowdown in transaction volume growth from normalization, poor choice of acquisitions.
Upside Risks: outperformance in transaction volume and revenue growth, Acceleration in Venmo and cashless transaction uptake, any slowdown in take-rate reductions, positive consumer behavior changes.