Affordable Shares I Continually Purchase without Holding Back
Affordable Shares I Continually Purchase without Holding Back
PayPal (PYPL, decreasing by around 80% from its 2021 peaks) is a topic of debate, as there are genuine reasons supporting this downturn. At that time, the company leaders were assuring investors that they would reach an impressive 750 million active users within a few years, which was currently around 400 million. Unfortunately, this target was not achievable, and PayPal's active user base has even experienced a slow, steady decrease since then.
Moreover, there are valid concerns about expanding the business beyond what the existing PayPal and Venmo platforms currently offer, which needs further exploration.
Nevertheless, it's worth considering the possibility that PayPal could be a brilliant investment opportunity at its present price. Let me explain the factors inspiring this belief.
Embrace the change
PayPal has a newly formed management team. Leading the charge is the new CEO, Alex Chriss, previously an executive at Intuit. The rest of PayPal's senior leadership team has only recently joined, most of them within the last six months. Here are some notable additions:
- Alex Chriss recruited an executive VP from Intuit, who previously handled the QuickBooks Money Platform and consumer lending at SoFi.
- PayPal's new president of global markets had previously served as the chief growth officer at Fiserv.
- The company's new CFO, formerly of Ernst and Young, also joined the team.
- Chriss added another executive VP from Verizon, famous for her long-time position as the company's chief marketing officer.
- A former SoFi and Citigroup chief risk officer recently joined PayPal as the chief enterprise services officer.
Although this is a new team, their credentials are undeniably impressive. Among the mentioned individuals, Alex Chriss is the longest-tenured, having taken over the CEO role in September 2023.
It's crucial to afford this team time to devise their strategy. Chriss has labeled 2024 a "transition year" for PayPal and has already made commendable progress in cutting costs. However, it'll take several quarters for their growth plans to be reflected in the financial results.
As an illustration, management recently revealed plans to establish an advertising business. This venture could potentially generate significant revenue in the future, but it will require time to materialize.
Encouraging results
Although the lack of new user growth may not spark much enthusiasm, the overall picture is not entirely dismal. PayPal has been focusing on engaging its most loyal users, and this strategy seems to be yielding results. The average active user now completes 13% more transactions through the platform than a year earlier.
Consequently, PayPal's total payment volume saw a 14% year-over-year growth, and revenue increased by 10% on a foreign-exchange-neutral basis. These numbers are commendable, considering the stagnation in user growth. For instance, PayPal's active user base actually grew by 0.4% sequentially in the first quarter.
To add to this, thanks to the cost-saving initiatives mentioned earlier, PayPal enjoyed a 98-basis-point expansion in operating margin, and earnings per share grew by 18% year-over-year.
An exceptionally undervalued stock
If Chriss and the new team succeed, PayPal could potentially offer substantial returns for patient investors. The stock currently trades at just 14 times forward earnings estimates, demonstrating minimal growth expectations despite the company generating over $5 billion in annualized free cash flow and currently boasting a positive net cash balance sheet.
Revitalizing a large fintech that has stagnated is no small feat, and there is a high degree of execution risk involved. However, for now, Chriss' focus on efficiency is spurring solid earnings growth, management is aggressively buying back shares, and PayPal still remains the most prominent name in online payments.
After revealing plans to establish an advertising business, PayPal's management highlighted the potential for generating significant future revenue, although it will require time to materialize. Given the new CEO Alex Chriss's impressive credentials and the team's focus on engaging loyal users, the company's total payment volume saw a 14% year-over-year growth, and revenue increased by 10% on a foreign-exchange-neutral basis. These positive financial results, coupled with PayPal's current undervalued status, with the stock trading at just 14 times forward earnings estimates, make investing in PayPal an appealing proposition for patient finance-savvy individuals.