PayPal: A Compelling Investment Amid Price Decline

When a fintech giant like PayPal Holdings Inc. (NASDAQ: PYPL) experiences an almost 80% drop in share value, it turns heads. This descent places PayPal in what's seen as an 'anti-bubble' territory, though it's not alone—its peer, Block Inc. (SQ), has similarly been hard hit. Evaluating PayPal's circumstances reveals a mix of both strengths and weaknesses when compared to Block, which boasts a rapid growth rate. However, PayPal claims a longer track record of GAAP profit and has been actively returning capital to investors via share buybacks, a strategy highly regarded by investment icons like Warren Buffett for being a sign of confidence from management about the intrinsic value of the company.

Share Buybacks: A Vote of Confidence

What has been particularly eye-catching is PayPal's aggressive approach to share buybacks. With $5.4 billion repurchased in the last year and potential for a substantial reduction in shares outstanding if these buybacks proceed, PayPal's new CEO, Alex Chriss, earns respect for his tenacity through these turbulent times. The possibility of share count being reduced by roughly 9% alongside a $61 billion market cap offers a unique opportunity for investors hoping for value realization.

A Closer Look at PayPal's Business and Competition

With a diverse roster of payment solutions including PayPal, Venmo, and Braintree, the company has established itself as a formidable force in the global digital payments landscape. Despite active user growth showing signs of stabilization post-COVID-19, PayPal's focus is now shifting to increase user monetization. Moreover, despite Venmo's robust user base and increasing catchphrase status—echoing Ted Weschler from Berkshire Hathaway's sentiment on the importance of verbs—the competition remains tough with major players like Block Inc., Fiserv, and Apple Pay challenging PayPal's market position.

Performance Insights: Not Just a Share Price Story

Despite the stark decrease in its stock price, PayPal's third-quarter performance doesn't reflect a company in distress, highlighting growing total payment volumes and an optimistic non-GAAP Earnings Per Share (EPS) forecast. Moreover, with an approximate growth of over 500% in EPS and nearly 243% in revenue across nearly a decade, PayPal's journey has been promising, though its recent share price appreciation lags behind these metrics.

Valuation and Balance Sheet Strength

The depth of PayPal's anti-bubble status is further evident when considering the price-to-sales ratio and the company's balance sheet. Sporting the lowest price-to-sales ratio on record and a balance sheet with cash equivalent to debt, the company's valuation and growth potential appear more promising than ever, particularly in light of the planned share buybacks.

Growth Ahead: Zettle and More

PayPal's growth prospects look bright with offerings such as Zettle Point of Sale Solutions. By integrating small and medium-sized businesses into its ecosystem, PayPal can promote its POS solution and drive more payment volume and fees. Furthermore, with its small business loan solutions, PayPal is poised to capture more market share in the lucrative short-term loan industry.

Risks and Considerations

Despite the opportunity, there are risks associated with increasing competition in the point of sale space and the broader fintech industry. The potential for an economic downturn could also pose challenges for PayPal's predominantly smaller and medium-sized business clientele.

Conclusion

In conclusion, PayPal offers a compelling investment case in the fintech space. Despite the competitive pressures, its established brand and unwavering growth make it a solid buy, especially considering the potential benefits from its strategic share buybacks and favorable valuation metrics. This anti-bubble scenario may present a clever entry point for value-driven investors.

PayPal, Investment, Fintech