PayPal Holdings, Inc.

PYPL Details

PayPal Holdings, Inc. (NASDAQ: PYPL) is engaged in providing technology platforms and payment services for digital and mobile payments on behalf of merchants and consumers globally. Its goal is to empower its merchants and consumers to manage and move their wealth globally, on any platform, using any device while sending or getting payments. The company provides various proprietary payments platforms like PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, and Hyperwallet. It also facilitates person-to-person (P2P) payments through PayPal, Venmo, and Xoom products to customize the consumers' shopping experience. PYPL operates in three segments: United States (U.S.), United Kingdom (U.K.), and Other countries. As of May 27, 2021, the company’s market capitalization stood at USD 307.03 billion.

Expanding Support to Cryptocurrencies and Digital Assets: On April 20, 2021, PYPL announced the launch of crypto on the Venmo platform, a mobile payment service owned by the former. The consumer can now buy, sell, and hold cryptocurrencies directly with Venmo app at as little as USD 1. Venmo currently provides access to four types of cryptos on its platform, i.e., Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

Earlier, on March 08, 2021, the company announced that it has agreed to acquire Curv to expand the company’s initiatives to support cryptocurrencies. Curv is an Israel-based provider of cloud-based infrastructure for virtual currencies. PYPL expects to complete the transaction in the first half of FY21.

Q1FY21 Results: The company reported a 30.64% increase in net revenue to USD 6,033 million in Q1FY21 (ending March 31, 2021) compared to USD 4,618 million in Q1FY20. The US segment contributed 50.77%, the UK segment contributed 10.35%, and the Other Countries segment contributed 38.86% of the total revenues in Q1FY21. Net income surged to USD 1,097 million in Q1FY21 compared to USD 84 million in Q1FY20.

As of March 31, 2021, the company had 392 million active accounts compared to 325 million as of March 31, 2020. It reported a 33.33% increase in the number of payment transactions to 4.4 billion in Q1FY21 compared to 3.3 billion in Q1FY20. Total Payment Volume (TPV) increased 49.21% YoY to USD 285 billion in Q1FY21 from USD 191 billion in Q1FY20.

Growth in Active Accounts (Source:  Company Presentation, May 06, 2021)               

Key Risks: The global payments industry is highly competitive, innovative, and increasingly subject to regulation and scrutiny. The company faces intense competition from various businesses providing physical and digital electronic payments. The company’s products and services also face strong competition from credit cards, debit cards, contactless payments, digital wallets and mobile payments solutions, and virtual currencies, such as cryptocurrencies and stable coins. Further, a single customer accounted for 26% and 23% of the net accounts receivable for FY20 and FY19, respectively, thus exposing PYPL to potential customer credit concentration risk.

PYPL FY21 Guidance (Source: Investor Presentation, May 06, 2021)

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PYPL Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: PYPL's share price has surged by 77.76% in the past twelve months and is currently trading at the higher end of the 52-week range of USD 140.02 to USD 309.14. We have valued the stock using the Price/Earnings based relative valuation methodology and arrived at a target price of USD 212.73. Considering the PYPL's leading position in online payments processing, decent financials, exposure to cryptocurrencies, and current valuation, we recommend an "Expensive” rating on the stock at the closing price of USD 259.47, down by 0.73% as of May 27, 2021.

* The reference data in this report has been partly sourced from REFINITIV.