PayPal Holdings, Inc. (NASDAQ:PYPL)’s shares underwent significant turmoil on Friday after they closed a whopping 12.7% lower. The dip came after reports surfaced that the Stripe-led group had abandoned plans to acquire the firm. The news, and the subsequent share price performance, proved that Cramer’s caution about the firm on August 17th was warranted. In his morning appearance back then, the CNBC TV host had advised listeners to buy JPMorgan or Wells Fargo over PayPal Holdings, Inc. (NASDAQ:PYPL). As the deal fell through, here’s what Cramer said on the 28th:
“What is Venmo worth? They have a huge buy now, pay later business, what is that worth?. . .Look I think it’s one of these companies that was early, but we’ve got a bunch of fintech companies that are kind of the scrum in the same place. I mean, Klarna, look at Klarna, I mean that was one that, that was a very exciting company it went down and now suddenly everyone’s taking it up today as if. . .I think it’s a crowded space and I don’t know what to say about, when you’re up against Max Levchin [Affirm CEO]. . .he is very good at what he does.”
Cramer’s remarks, where he wondered about Venmo’s valuation, relate to the debate surrounding PayPal Holdings, Inc. (NASDAQ:PYPL) in an important manner. Mobile wallets, such as those from Apple, have threatened the firm’s core business while the firm aims to generate as much as $400 million in cost savings and grow FY26 earnings per share to $5.38 from FY25’s $5.31 via acceleration in Venmo and improving its merchant acquisition platform Braintree. On this front, the second quarter earnings were a mixed set of results, as while PayPal Holdings, Inc. (NASDAQ:PYPL) grew revenue by 5% to $8.68 billion and payment volume by 10% to $486 billion, its earnings per share marked a 1% drop while transaction margin dollars grew by a modest 1%. To further add to the bearish fears, Q2 branded checkouts grew by just 5% to lag eCommerce growth.
However, Klarna Group plc (NYSE:KLAR)’s revenue, adjusted operating income, transaction margin dollars and gross merchandise volume grew by 27%, 214%, 42% and 18% during the second quarter which marked a strong contrast over PayPal. Crucially, the fact that operating income outpaced revenue growth indicated that the firm could improve profitablity much faster than it could gain market share. At the same time, Klarna Group plc (NYSE:KLAR) also posted a 24% growth for its average revenue per user and a subscriber revenue growth of over 600%. Yet, the firm’s reliance on Europe, and particularly on Germany, continues to remain a headache as it led management to cut full year GMV guidance to $149 billion to $151 billion, which trimmed growth expectations to 17% from the earlier 20%+.
Valuation wise, Klarna Group plc (NYSE:KLAR) is miles ahead of PayPal. The firm has a forward P/E multiple of 175, which is significantly higher than the latter’s 11,78. Additionally, factors such as forex headwinds and a German economic slowdown also appear to be reflected in the short interest. As of mid-August, short interest as a percentage of float was 11.53% for Klarna Group plc (NYSE:KLAR) and 4.4% for PYPL, despite the latter’s trickier growth story. Looking at the hedge funds, 38 funds covered by Insider Monkey had held KLAR’s shares, while the figure was 60 for PYPL.
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Disclosure: None.
