2024-01-23 08:30:00 ET
Summary
- PayPal's stock surged nearly 15% after a candid interview from new CEO Alex Chriss aired last Wednesday, who expressed excitement about future innovation and AI.
- Despite recent analyst downgrades and rising competitive pressures, PayPal's business fundamentals remain strong, with healthy sales and earnings growth, robust cash flow generation, and a positive net cash balance.
- At ~12x P/E, PayPal is a robust compounder priced at a sizeable discount. But, is it a value trap? Read on to find out!
Introduction
After a slew of analyst downgrades, PayPal Holdings, Inc. ( PYPL ) was flirting with the mid-$50s by Wednesday morning last week. While a re-test of recent lows at ~$50 per share looked like a foregone conclusion, PayPal's stock surged higher to end the week up nearly 8%, outperforming broader market indices by a good bit.
At the heart of this surprising turnaround was a candid interview of PayPal's new CEO and President, Alex Chriss. Here are some of his comments from that CNBC interview:
- On recent analyst downgrades and competitive pressures:
Look we're an important company, we've got a quarter of the world's e-commerce running through PayPal; that's why we've got 45 analysts following us. To be honest, there hasn't been a lot to celebrate over the last few years; I think innovation's been slow, the company's been growing but hasn't been putting out real customer backed innovation and that's why I'm here, that's why I'm so excited about it going forward. I love being an underdog, I will take all of that feedback and we will shock the world.
- On being asked, how?
We've got an innovation day coming out on the 25th (January 2024). From the first week that got here, this was not about trying to figure out what to go do, it is very clear what we need to do. 2024 will be a transition year for us but it'll be all about execution and it starts with innovation. So on the 25th we're going to come out with very clear customer backed innovation that we will be rolling out for consumers, merchants, and Venmo.
- On being asked about specific innovations:
PayPal hasn't delivered the value proposition to its consumers or its merchants over the last few years that I think we're capable of. We have more data, we see exactly what people are purchasing around the world, so we need to make a better value proposition for consumers, put more money in their pockets, and for our merchants we have the ability to leverage AI to deliver an incredible improvement in their conversion rates and then we have to let our small businesses and our consumers connect leveraging AI driven personalization.
We have over 35 million merchants that are using PayPal; when we improve their conversion rate, it improves their business it improves our bottom line.
- On PayPal's data monetization prospects:
Our data, it's our consumers' data and our small businesses' data; what we need to do is leverage AI to make it better for them, to be able to grow their businesses.
Small businesses are under a ton of pressure right now. It is hard to be a small business in good times, and it's not good times right now. We can give them an advantage. Advertising costs have gone up ~2x over the last few years. We need to be able to give them the opportunity to leverage the data that they have and improve their business
- On margin deterioration (unprofitable revenue growth):
Yeah, I think we have done too many acquisitions over the last few years and we've been defocused. This was one of the things I noticed when I came in a 100 days ago. We've got a lot of priorities, but we've narrowed those down to five key priorities all focused on profitable growth and so I think you'll see us start to move away from some businesses that we may have been in and really focus our energy and our efforts on building profitable growth going forward. It's going to be a lot of fun!
Source: YouTube [lightly edited by the author for clarity]
Read the full article on Seeking Alpha
For further details see:
The PayPal Dilemma: Value Trap Horror Or Investment Bliss?