3. PayPal Holdings Inc (NASDAQ:PYPL)
Number of Hedge Fund Investors: 87
Jim Cramer was recently asked about Kaspi.kz AO – ADR. He said it’ a “good company” but recommended PayPal as a better buy.
“This is FinTech. This is a good company. I prefer, right now, I have been watching PayPal Holdings Inc (NASDAQ:PYPL). Similar business, better value.”
PayPal’s CEO Alex Chriss, is opening new growth horizons for PayPal Holdings Inc (NASDAQ:PYPL) beyond just a way to send or receive money. Thanks to his vast experience with small businesses at Intuit, he is integrating valuable features for customers and merchants to boost small business activity on the platform.
What are these features?
PayPal’s Fastlane offers a seamless checkout experience for customers by storing their data after the first purchase, making future transactions faster. Merchants benefit from higher conversion rates, with tests showing guest conversion jumping from 40-50% to around 80%. Fastlane also speeds up the checkout process by 32%, boosting customer satisfaction. PayPal Holdings Inc (NASDAQ:PYPL) charges merchants a fee for this service, which merchants find worthwhile given the increased conversions.
PayPal Holdings Inc (NASDAQ:PYPL) is also benefiting from its partnerships with companies like Meta, Salesforce, and Adobe. Its PayPal Complete Payments Platform (PPCP) has seen a 40% rise in SMB volume this year, thanks to new merchant integrations.
The company is also launching PayPal Holdings Inc (NASDAQ:PYPL) Ads, a high-margin opportunity that leverages its ecosystem of over 429 million active users. The platform allows merchants to target ads more effectively, increasing their return on investment.
Many don’t know but PayPal has also dabbled into cards, with its debit card offering 5% cashback and integration with Apple Wallet. Recent European regulations also allow PayPal Holdings Inc (NASDAQ:PYPL) to use Apple’s NFC technology for contactless payments, enhancing its reach in international markets, especially in Europe where such payments are popular.
PayPal Holdings Inc (NASDAQ:PYPL) bulls believe the stock’s valuation has become attractive. Its forward P/E ratio of 14 is now 55% lower than its five-year average. Wall Street analysts expect PayPal Holdings Inc (NASDAQ:PYPL) earnings to grow 9.5% next year. If we incorporate PayPal new product growth strategy and catalysts, the stock looks undervalued. PayPal Holdings Inc’s (NASDAQ:PYPL) cash sits at about $14 billion, and long-term debt stands at only $9 billion.
Artisan Value Fund stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q2 2024 investor letter:
“We made one new purchase in Q2, adding PayPal Holdings, Inc. (NASDAQ:PYPL), a financial technology company that enables digital and mobile payments between consumers and merchants. PayPal has world-class assets. It operates the largest two-sided payment network (ex-China); owns Venmo, the largest peer-to-peer payment network (ex-China); and owns Braintree, the third-largest modern payment service provider (PSP), which is growing at a similar pace to peers, such as Stripe and Adyen. Each of the PSPs are taking share from legacy competitors such as Worldpay, with significant runway left on remaining share gains. As the original e-commerce payment processor with years of history in the marketplace, PayPal has access to a large trove of customer data, a first-class risk engine and embedded consumer and merchant trust. This is difficult for newer peers to replicate without time and investment. Post-COVID, PayPal’s shares have been pressured by intensifying competition, the threat of which has seemingly been exacerbated by prior management missteps. Shares trade for under 14X next year’s expected earnings, which have been reset materially lower over the past year due to depressed expectations. This is an attractive entry point to purchase a stake in a business with above-average—and improving—unit economics and a strong balance sheet. Competent new management is already leaning on the company’s strong financial position to maximize the value of these assets. While we wait for tangible results, we should have plenty of free cash flow pointed back at us in the form of share repurchases.”
