3. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 126
PayPal Holdings, Inc. (NASDAQ:PYPL) is a California-based company operating a technology platform that enables digital payments for merchants and consumers worldwide. It provides payment solutions under the PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy names. On November 3, PayPal Holdings, Inc. (NASDAQ:PYPL) reported a Q3 non-GAAP EPS of $1.08 and a revenue of $6.85 billion, topping Wall Street estimates by $0.12 and $30 million, respectively. The company expects FY23 non-GAAP EPS growth of at least 15%.
On November 7, DA Davidson analyst Christopher Brendler reaffirmed a Buy rating on PayPal Holdings, Inc. (NASDAQ:PYPL) but cut the price target on the shares to $110 from $120. PayPal Holdings, Inc. (NASDAQ:PYPL)’s Q3 results were a “step back” after a positive performance in Q2 as multiple primary underlying metrics deteriorated, the analyst told investors. However, he added that PayPal Holdings, Inc. (NASDAQ:PYPL) has “made real progress” on expenses and “credit looks great”, with buy-now-pay-later business outperforming.
According to Insider Monkey’s data, 126 hedge funds were long PayPal Holdings, Inc. (NASDAQ:PYPL) at the end of the third quarter of 2022, compared to 97 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the biggest stakeholder of the company, with 17.6 million shares worth $1.5 billion.
Here is what RiverPark Large Growth Fund has to say about PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2022 investor letter:
“PayPal, 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 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, which is almost triple the acceptance of Apple Pay, the number two digital wallet. PayPal 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.”
