DASH - PayPal: Unlocking $90+ Value
2024-01-29 12:55:05 ET
Summary
- PayPal faces margin erosion due to an increasing share of lower-margin unbranded processing, which grew to 30% of total payment volume in 2022 and continued to rise in 2023.
- PayPal is addressing margin pressures through key strategies like upgrading Braintree's services and a major loan sale to KKR, aimed at boosting cash flow and reinforcing share buybacks, reflecting confidence.
- PayPal's agreement with KKR to sell up to $44 billion in 'buy now, pay later' loan receivables, representing 64% of its current market cap, is a pivotal move.
- Our analysis suggests a fair value of approximately $90/share, considering strategic initiatives and long-term growth potential, even amidst competitive and market challenges.
Investment Thesis
Our earlier analysis indicated that PayPal Holdings, Inc. ( PYPL ) has entered an accumulation phase, supporting our thesis on PYPL based on its strong Q3 results, a wider margin of safety, and soaring earnings yield. Lastly, we expected a sideways movement before an uptrend towards ~$64 , with a breakthrough at ~$75 necessary to kickstart a bull run.
A few months later, PYPL's jump to ~$66 was short-lived, setting the stage for another potential bull run. Finally, our valuation analysis indicates a fair value of approximately ~$90 per share for PayPal, reaffirming our strong buy rating ....
PayPal: Unlocking $90+ Value