2. PayPal Holdings Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holdings: 97
YTD Decline (As of October 29): 55.76%
Based in San Jose, California, PayPal Holdings Inc. (NASDAQ:PYPL) is an American multinational financial technology company which operates an online payments system in the majority of countries which support online money transfers, and also provides electronic alternatives to traditional paper methods such as checks and money orders. As of the second quarter of 2022, the company beat EPS estimates of $0.86 by $0.07, posting earnings of $0.93 per share. Net revenues for the stock are expected to reach up to $7.02 billion in Q3 2022, growing about 10% on a spot basis.
On October 12, Atlantic Equities analyst Kunaal Malde lowered the price target on PayPal Holdings Inc. (NASDAQ:PYPL) to $110 from $120, maintaining an Overweight rating on the shares. According to the analyst, as the threat of an impending recession becomes more apparent, he is assuming a modest economic downturn in 2023 forecasts. The company’s market cap is set to triple by 2030, with the current leadership of the company focused on acquisitions, share buybacks, a strong cash position, and meaningful partnerships. All these factors are potential growth drivers for the company, with the company aiming to increase its presence in developed countries, where the platform’s consumer penetration is still below 50%. And since payment stocks are beginning to discount, the analyst maintains that high-quality stocks like PayPal Holdings Inc. (NASDAQ:PYPL) have attractive valuations and limited downside to consensus earnings forecasts, making them an excellent investment opportunity for the long-term investor.
Here is what RiverPark Funds had to say about PayPal Holdings Inc. (NASDAQ:PYPL) in their Q3 2022 investor letter:
“PayPal (NASDAQ:PYPL), announced better-than-expected 2Q results, positive guidance (including more than $1.3 billion of 2023 cost savings leading to operating margin expansion), a $15 billion stock repurchase program, and the appointment of Blake Jorgensen as CFO, who was previously the well-regarded CFO at Electronic Arts. The company reported 9% revenue growth, in-line with guidance, and $0.93 EPS, exceeding guidance due to robust operating leverage. Management narrowed its 2022 revenue guidance from 11%-13% growth to about 11% growth due to the macro environment but raised its EPS guidance due to greater operating margin leverage and share buybacks. The stock also reacted to the news that activist investor Elliott Management had taken a stake in the company. PYPL operates at significantly lower margins than its payment competitors Visa and Mastercard, and sources suggest that Elliott intends, among other things, to push for the company to improve its margins and drive higher cash flow growth in the near term.
PayPal (NASDAQ:PYPL) provides direct exposure to the secular growth in ecommerce-driven digital payments as it is the most accepted digital wallet on-line. More than 3/4 of the 1,500 largest online retailers across North America and Europe accept PayPal (NASDAQ:PYPL), which is almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal (NASDAQ:PYPL) is also a key beneficiary of the current dramatic shift in consumer buying habits brought on by the pandemic, as well as the relatively newer consumer-to-consumer payment trends through its Venmo peer-to-peer (P2P) payment service. With a 2Q non-GAAP operating margin of 19%, PYPL also has significant margin expansion potential given that competitors Adyen, Visa and Mastercard have 50%-65% operating margins. We believe the combination of the secular growth of eCommerce and P2P payments, along with expanding operating leverage and the strategic use of the company’s significant and growing cash balance should fuel a mid-20% earnings growth rate over the next five years. This, to us, presents an excellent risk/reward profile given that PYPL trades at a modest premium to the market multiple and a 6% 2023 FCF yield.”
