Paypal stock is up more than 200% since it was spun out of EBAY in 2017
but this stock has been hammered recently after reported disappointing fourth quarter results.
Is right now a good time to pick up a couple of shares? let's run this company
through our investing frameworks to find out my name is Brian Feroldi
thanks to Stockcard.io for sponsoring today's video so paypal is a $144 billion market cap
company that trades under the ticker symbol PYPL company's mission statement is to democratize
financial services to help improve the financial health of individuals and to increase economic
opportunity for entrepreneurs and businesses of all sizes around the world while that's a
mouthful i do like the mission statement i think it could be vastly simplified though so what
does paypal do paypal is an electronic payments company that connects merchants and consumers
together paypal has built out a portfolio of products including its namesake paypal business
but also businesses such as Venmo, Xoom and even Honey paypal has more than 426 million accounts
as of the end of 2021 and its services provide a range of financial solutions you can use paypal
to do peer-to-peer payments you can add it to your website to do checkout they do payment processing
in-person payments and they even provide marketing tools for businesses through the company's
honey acquisition how does paypal turn that into revenue in a couple different ways the
primary ways are payment transaction fees foreign currency conversion fees instant transfer fees
interest fees and other value added service fees impressively the number of active accounts on
paypal's platform have continually grown over the years have have the number of payment transactions
and in 2021 the company processed more than $1.2 trillion in total payment volume now
given the company's size and maturity its customer acquisition costs have been driven down over time
and today they are quite low the demand for payment solution products such as paypal
offers do tend to be recession resistant that's especially true considering this company is
continually capturing market share longer term it is likely that the company's revenue could become
more cyclical as it continues to mature and on the positive side nearly all of the company's
revenue is recurring in nature the number one moat protecting paypal is the network effect
merchants naturally want to accept payments on platforms that have the most users
and vice versa given paypal's extreme size long history and dominance we think that the
network effect is very strong for paypal i also think that paypal benefits from switching costs
once a merchant gets up and running with paypal software and once a consumer downloads and starts
using the app it can become a little bit onerous to switch away and use something else there's
also an arguments me that paypal's brand name has become extremely strong haven't existed for
more than two decades now and the name paypal has become synonymous with online payments and while
there's no doubt that competition in the space is heating up i think there's an argument to me
that the company's moat is still expanding to this day taking a look at paypal's financial statements
they are in a word fantastic revenue growth has been strong for many years and clocked in at more
than $25 billion in 2021 gross margin clocked in at nearly 60% for the fourth quarter although this
number does bounce around depending on how you calculate it and just as impressive is the company
generates huge amounts of both net income and free cash flow both numbers clocking in at more than
$5.4 billion in 2021. the company's balance sheet is in good shape with more cash than debt and the
company boasts more than $9.5 billion in cash on its books and given that the company is profitable
its returns on capital are medium to medium high paypal was founded by peter thiel max levchin and
ken howardly you can also add elon musk to that list if you'd like but none of them are involved
with the business day-to-day operations anymore instead paypal is headed up by dan schulman who
has been in the corner office for eight years now gentlemen and paypal get glowing reviews on
glassdoor on the downside inside ownership here is very very low less than one tenth of one percent
turning to optionality does paypal have any i think the answer there is yes not only is the
entire fintech sector growing and not only does a company have tailwind such as home delivery
e-commerce and even digital wallets going for it but the company is experimenting with things like
crypto currencies which could be a long-term tailwind for the business as for operating
leverage there isn't likely to be that much left the company is already putting up net margins
over 20% so it's hard for me to see them moving meaningfully higher over time and this might sound
unbelievable but paypal's total adjustable market opportunity has estimated to be over
$180 to $185 trillion of which the company has captured less than one percent of its market
and while the company is certainly not shy about pulling the trigger on acquisitions the majority
of the company's revenue does come from organic channels turning to the stock performance while
the company has been under huge selling pressure recently it has still outperformed the market both
since ipo and over the last five years and it does tend to have a history of exceeding
wall street's estimates although it did miss when it most recently reported as for capital
returns the company does spend a large amount of capital on buybacks it does pay back a little bit
of debt each year and as as of the time this recording it has not yet initiated a dividend
turning to competition that is the number one risk for investors to watch the company faces direct
competition from the likes of stripe square ad yen to say nothing of the hundreds of other fintech
upstarts as well as from big tech companies such as apple amazon and google so competition
is a major thing for investors to watch another long-term risk is disruption from cryptocurrencies
while management believes that cryptocurrencies are a tailwind for right now there's no doubt
that longer term that could prove to be a headwind and finally with the stock selling off so hugely
over the last couple of months valuation for the company is still higher than the average company
in the s&p 500 however shares are not nearly as expensive as they were and the valuation risk is
not huge today given how much shares have fallen so what should investors watch moving forward
first and foremost keep an eye on that total payment volume we want that number to continue
to move up and to the right second keep an eye on users both users and merchants we want to see the
number of people using paypal's platform continue to grow and third keep an eye out for optionality
the company believes that crypto could be a huge tailwind for the business so we want to see
the company executing against that opportunity so had this company score in our investing checklists
for me this company got a 78. it used to be in my high-quality business category I
did recently deduct a few points but overall I still think this company is highly investable
on Brian Stoffel's framework we give this company a 9 that puts it squarely in the robust category
time to hold ourselves accountable so I'm going to head over to stockcard.io and I'm going to
go to the antifragile portfolio I'm going to click new order type in the ticker which is PYPL
we're going to be doing a buy decision recording this on Wednesday, February 9th shares are $123
each so we're gonna buy about nine of them and they received a score of nine on brian's investing
framework next I'm going to head over to my thumbs up a portfolio which is the brian for all the
quality checklist and I'm also going to place the same order so that's ticker symbol p-y-p-l
we're gonna do a buy decision today's date is Wednesday, February 9th I'm also going to buy
nine shares and the score for me was 78. overall I happen to think that PayPal is a fantastic
business that is currently trading at a very attractive valuation and while I currently own
shares I could easily see myself adding to this company in the not too distant future brian out