3. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 115
PayPal Holdings, Inc. (NASDAQ:PYPL) is a technology company that provides digital payment solutions through a variety of brands, including PayPal, Venmo, and Xoom. In August 2022, the company revealed that its users can now transfer cryptocurrency from PayPal to external crypto addresses without incurring any network fees. PayPal Holdings, Inc. (NASDAQ:PYPL) and Galaxy Digital partnered together to lead a seed funding round worth $20 million for Chaos Labs on February 21. Chaos Labs is a startup that offers an automated economic security system for cryptocurrency protocols. The funding will be used by Chaos Labs to expand its offerings and develop its suite of risk and security products focused on decentralized finance.
On February 13, BMO Capital’s James Fotheringham maintained an Outperform rating on PayPal Holdings, Inc. (NASDAQ:PYPL), but lowered the price target from $117 to $108. Despite the Q4 earnings beat driven by lower costs, the firm expects lower organic revenue growth potential and has adjusted its price target based on this. While BMO raised its FY23 EPS outlook to $4.87, revenue growth remains the key factor affecting the stock’s valuation rather than margins, as per the analyst’s research note.
According to Insider Monkey’s fourth quarter database, 115 hedge funds were long PayPal Holdings, Inc. (NASDAQ:PYPL), compared to 126 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is a significant position holder in the company, with 6.75 million shares worth $481 million.
Horos Asset Management made the following comment about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2022 investor letter:
“As I mentioned at the beginning of this quarterly letter, we took advantage of the meltdown in technology platforms to initiate new positions in companies in which we had already been shareholders in the past and whose valuation did not, until now, provide a sufficiently high margin of safety. Such is the case of PayPal Holdings, Inc. (NASDAQ:PYPL) and Baidu.
PayPal is one of the world’s largest online payment companies and the leader (ex-China) among digital wallets. The company operates on both sides of a transaction, offering services that facilitate buying for its users and selling for merchants, acting as a payment gateway. In recent years, PayPal has expanded its ecosystem, organically and inorganically, into other financial services (business and consumer lending, remittances, fraud prevention, dataphones, card payments, etc.) and marketing (discounts, targeted campaigns, etc.). Its most successful current products are probably Venmo (an app with services like PayPal, but with a social network component, which successfully attracts a younger audience), Braintree (payment gateway) and its interest-free consumer finance service (Buy Now, Pay Later).
This rich ecosystem has allowed PayPal to continue its high growth in recent years, reaching 432 million active accounts (of which some 35 million correspond to merchants) by the end of the third quarter of 2022, as well as increasing the attractiveness for its customers, as evidenced by the record number of transactions per account recorded in the latest earnings release. In addition to this, PayPal has achieved a historic milestone, reaching an agreement with Amazon that will allow its customers to buy products with Venmo’s payment service. However, not all has been good news for PayPal in recent years. The reality is that this growth has not been accompanied by the operating leverage that was expected, which contributed to the negative sentiment towards the company in 2022, already elevated due to the burst in the tech sector valuations and the recessionary environment in many economies where PayPal operates. However, the management team has taken action and is starting a series of initiatives to expand margins significantly over the next few years. This turnaround, coupled with a (now) very attractive valuation, led us to reinvest in the company.”
